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PRODUCTION THEORY (Physical relationships between inputs
and outputs:…
PRODUCTION THEORY
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Short run
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In economics: the period during which at least one factor input is fixed while other inputs are variable
Very short run, during which all factors of production are fixed
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Long run
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Very long run, during which technology can also change (technology is changing more quickly now)
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Efficiency
Technical efficiency
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a given output
may be produced
in many ways,
each one of
which may
be technically efficient
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Economic efficiency
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this usually involves a unique combination of inputs, the levels of these inputs depending on their substitutability and complementarity, and also on their prices
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Increasing returns: When the variable input is very low, the fixed input, is underutilized
Increased productivity
More workers
first, increased speciailization
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Diminishing returns: when additional units of a variable factor are combined with a fixed amount of another factor(s) the additions to total output, in other words the marginal product, will eventually decline
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