Economics: Production Function

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Questions and Answers

What does the production function depend largely on?

Labor and Raw Materials

Water Well and Area of the Farm

Labor and Capital (correct)

Capital and Equipment

What does the total product curve show in the short run?

The maximum output produced using a certain set of fixed inputs

The average product of labor

The relationship between output and the quantity of capital used

The relationship between output and the quantity of labor employed (correct)

What is the relationship between output and the inputs in the production function?

Negative relationship

Positive relationship (correct)

No relationship

Inverse relationship

What are the three concepts used to describe the relationship between output and the quantity of labor employed?

Total Product, Average Product, and Marginal Product Signup and view all the answers

What is the assumption made in the production function?

Capital is fixed and Labor is variable Signup and view all the answers

What is the nature of the second partial derivatives of output with respect to each of the inputs?

Negative Signup and view all the answers

What is the type of production function that depends on the time-frame in which the firm is operating?

Short-run Production Function Signup and view all the answers

What is the name of the concept that measures the total output in a given period?

Total Product Signup and view all the answers

What is the primary concern of a manager in a profit-maximizing firm?

Maximizing profit Signup and view all the answers

What is the production function?

A technical relationship between inputs and output Signup and view all the answers

What are the two intermediate targets for a manager seeking to maximize profits?

Choosing the optimal quantity of each input and the optimal size of the firm Signup and view all the answers

What is assumed in the production function?

Fixed state of technology and efficient use of input combinations Signup and view all the answers

What determines the level of output a firm should produce?

Production function Signup and view all the answers

What is typically considered in a production function?

Two inputs: labor and capital Signup and view all the answers

What is the relationship between inputs and output in a production function?

Input increases, output increases Signup and view all the answers

What is the ultimate goal of a manager in choosing the optimal size of the firm?

Maximizing profits Signup and view all the answers

What is the term for the technical relationships that show the maximum attainable production levels using different combinations of input at a given state of technology within a given period of time?

Production Function Signup and view all the answers

What is the result of increasing the quantity of a variable input, while holding all other inputs constant, leading to a decrease in the additional output?

Law of Diminishing Returns Signup and view all the answers

What is the term for the total amount of output that a firm produces within a given period, utilizing given inputs?

Total Product Signup and view all the answers

If a firm's total product increases from 100 units to 120 units when an additional unit of labor is added, what is the marginal product of the additional unit of labor?

10 units Signup and view all the answers

What is the term for the output per unit of input of variable factors?

Average Product Signup and view all the answers

What happens to the marginal product when additional units of a variable input are combined with a fixed input?

It initially increases, but eventually decreases Signup and view all the answers

If a firm's production function exhibits constant returns to scale, what will happen to the output if all inputs are doubled?

Output will double Signup and view all the answers

What is the term for the increase in total output resulting from an increase in all inputs?

Returns to Scale Signup and view all the answers

Study Notes

Production Function

The production function expresses the relationship between the quantity of productive factor used and the amount of product obtained.
The first partial derivatives of output with respect to each of the inputs are positive, indicating a positive relationship between output and inputs (X and Y).
The second partial derivatives of output with respect to each of the inputs are negative, indicating that the production function has a maximum point.

Concepts of Production

Total Product: the total output in a given period.
Marginal Product: the increase in total product due to the addition of one more unit of variable factor.
Average Product: output per unit of input of variable factors.

Short Run and Long Run

In the short run, the production function depends largely on labor and capital.
To increase output in the short run, a firm must increase the amount of labor employed.
The total product curve shows how total product changes with the quantity of labor employed.
In the long run, the firm can choose the optimal size of the production capacity that minimizes the cost.

Key Assumptions

The production function assumes a fixed state of technology, efficient use of input combinations, and a given time period.
The production function can be represented as Q = F(X, Y), where Q is the output, and X and Y are the inputs (labor and capital).

Revenue and Profit

Total Revenue is the full amount of total sales of goods and services.
Marginal Revenue is the increase in revenue that results from the sale of one additional unit of output.
Profit is the difference between Total Revenue and Total Cost.

Quiz Questions

What equation expresses the relationship between the quantity of productive factor used and the amount of product obtained?
What are the two factors of production?
What is the theoretical objective of a firm?
What is an increase in revenue that results from the sale of one additional unit of output?
What is the marginal revenue?
What is the technical relationship that shows the maximum attainable production levels using different combinations of input?
What is the relationship between one variable factor and output?
What is the time period over which the firm can change the quantities of all the inputs?

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Description

This quiz covers the production function, its relationship with inputs, and the characteristics of the function. Test your understanding of the first and second partial derivatives of output with respect to inputs.