Chapter6

# Chapter6 - P roduction Chapter 6 Chapter Outline The...

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Production Chapter 6

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Chapter Outline The Technology of Production Production with One Variable Input (Labor) Production with Two Variable Inputs Returns to Scale
Theory of the firm Des cribes how a firm makes cost- minimizing production decisions how the firm’s resulting cost varies with its output.

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Production decision of a firm The production decisions of firms can be understood in three steps: 1. Production Technology 2. Cost Constraints 3. Input Choices
The Technology of Production Factors of production: Inputs into the production process (e.g., labor, capital, and materials). Production function: the relationship that describes how inputs like capital and labor are transformed into output. Mathematically, Q = F ( K , L ) K = Capital L = Labor

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The Production Function Long run: amount of time needed to make all production inputs variable. Short run: period of time in which quantities of one or more production factors cannot be changed. Variable input: an input that can be varied in the short run. Fixed input: an input that cannot vary in the short run.
Short-run Production Funtion Three properties: 1. It passes through the origin 2. Initially the addition of variable inputs augments output at an increasing rate 3. beyond some point additional units of the variable input give rise to smaller and smaller increments in output.

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Chapter6 - P roduction Chapter 6 Chapter Outline The...

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