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CHAPTER SIX- PRODUCTION - Coggle Diagram
CHAPTER SIX- PRODUCTION
Production decisions of a firm
production technology
how inputs(capital,labor,raw materials) are transformed to outputs
cost constraints
how inputs are transformed into outputs- cost effectively- budget friendly
3.
input choices
concern with cost of production, price of labor, capital etc
firms offer coordination that would be missed if workers were independent
firms eliminate need for each worker to negotiate each task
hire managers who direct staff
factors of production
labor, materials, capital
production function
shows the highers output a firm can produce with combinations of input
what is technically feasible when
operating efficiently
short run vs long run
short
production factors cant be varied
long
time needed to make all inputs variable
Production with one variable input
Average product
output per unit of a particular input
Output/labor input = q/L
marginal product
additional output produced as an input- increased by one unit
depends on the amount of capital used
Change in output/change in labor input = ∆q/ ∆ L
law of diminishing returns
use of an input increases while others are fixes- output eventually decreases
Labour productivity
consumers can increase their amount of consumption by increasing amount of production
promote growth in productivity by increasing stock capital(money) & better technology
Production with two variable inputs
isoquants
shows all combinations of inputs that yield the same output
shown on a
isoquant map
output increases from q1 to q2 to q3
blue line shoes diminishing marginal returns
each unit of labour produces less output
show flexibility firms have when making production decisions
downward sloping and convex
slope at any point measures MRTS
fixed-proportions production function
only one combination of capital and labour
perfect substitutes
MRTS is constant
MRTS
= −Change in capital input/change in labor input
(MPl)(MPk) = Change K/ Change L = MRTS
Returns to scale
rate output increases as input increases proportionately
constant returns to scale
output double because inputs doubled
increasing returns to scale
output more than doubles when input is doubled
