revision+chapter+6[1]

revision+chapter+6[1] - Chapter 6: Revision What is...

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Chapter 6: Revision
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What is production? Production is any activity that creates current or future utility. A production function summarizes the relationship between inputs and outputs. The short run is defined as the period in which at least one input is fixed.
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Marginal product The MP of a variable input is defined as the change in output brought about by an additional unit of the variable input when all other inputs are held fixed. The Law of Diminishing (marginal) Returns says that beyond some point the MP declines with additional units of the variable input.
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Productive efficiency across 2 processes (Olivia’s orchard) Need to allocate production such that marginal product is the same in both processes (interior solution) OR If marginal product of one process is always higher, then allocate all production to that process (corner solution)
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Long-run The long run is defined as the period required for all inputs to be variable In the two input case, all of the relevant information can be summarised in an isoquant map.
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MRTS MRTS is the rate at which one input can be substituted for another without altering
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This note was uploaded on 05/23/2011 for the course ECON 203 taught by Professor Jules during the Spring '11 term at University of Cape Town.

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revision+chapter+6[1] - Chapter 6: Revision What is...

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