Economics - 1 Theory of Production and Marginal Products...

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1. Theory of Production and Marginal Products The relationship between the quantity of output (such as wheat, steel, or automobiles) and the quantities of inputs (of labor, land, and capital) is called the production function. Total product is the total output produced. Average product equals total output divided by the total quantity of inputs. We can calculate the marginal product of a factor as the extra output added for each additional unit of input while holding all other inputs constant.
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1. Theory of Production and Marginal Products 2 Important definitions : 1. The PRODUCTION FUNCTION specifies the maximum output that can be produced with a given quantity of inputs. It is defined for a given state of engineering and technical knowledge. 1. The MARGINAL PRODUCTION of an input is the extra output produced by 1 additional unit of that input while others inputs are held constant.
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Product-Organization Structure
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2. Theory Law of Diminishing Returns Using production functions, we can understand one of the most famous laws in all economics, the law of diminishing returns : The marginal product of each input will generally decline as the amount of that input increases, when all other inputs are held constant.
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2. Theory Law of Diminishing Returns
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