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AP Economics. Mr. Bernstein Module 54: The Production Function November 4, 2013. AP Economics Mr. Bernstein. The Production Function The relationship between and firm’s inputs and outputs In general, the relationship is positive . AP Economics Mr. Bernstein. Input and Output

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AP Economics

Mr. Bernstein

Module 54:

The Production Function

November 4, 2013


AP EconomicsMr. Bernstein

The Production Function

  • The relationship

    between and firm’s

    inputs and outputs

  • In general, the

    relationship is

    positive


AP EconomicsMr. Bernstein

Input and Output

  • Variable Inputs: can be increased to increase production

  • Fixed Inputs: cannot be increased in the near term to increase production

  • The short run: at least one input is fixed. The time period that is too brief for a firm to alter its

    plant size (capital is fixed)

  • The long run: all inputs may vary

    A period of time long enough for

    a firm to vary all inputs,

    including capital (ie plant size)

  • Time of “long run” varies by firm


AP EconomicsMr. Bernstein

Total Product

  • TP (or Q)

  • Production function shows TP at various levels of a variable input or inputs (ie labor, raw materials) and fixed input (capital)

  • Typically increases rapidly at first (ie as new workers are hired) but as opportunities to specialize have been implemented, will rise slower…and eventually turn downward


AP EconomicsMr. Bernstein

Marginal Product

  • The additional output produced as a result of hiring one more unit of the input

  • MPL = (Δ Total Output)/(Δ Labor)

  • MPC = (Δ Total Output)/(Δ Capital)

  • MP = slope of TP curve

  • TP curves demonstrate Diminishing Returns to Inputs

    • As more and more of a variable input is added to a fixed input, the additional output produced will decline

    • Not due to inferior quality of inputs


AP EconomicsMr. Bernstein

Total Product Presented Graphically

  • MP can be diminishing but TP keeps rising until MP<0


AP EconomicsMr. Bernstein

Marginal Product Presented Graphically

  • MP is diminishing , and therefore TP rising, until QL ~= 6.5


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