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19 Cards in this Set

  • Front
  • Back
theory of a firm
explanation of how a firm makes cost-minimizing production decisions and how its cost varies with its output
production function
function showing the highest output that a firm can produce for every specified combination of inputs
short run
period of time in which quantities of one or more production factors cannot be changed
fixed input
production factor that cannot be varied
long run
amount of time needed to make all production inputs variable.
average product
output per unit of a particular input
marginal product
additional output produced as an input is increased by one unit
average product of labor
output/labor input = q/L
Marginal product of labor
Change in output/ change in labor input = delta q/ delta L
law of diminishing returns
Principle that as the use of an input increases with other inputs fixed, the resulting additions to output will eventually decrease.
labor productivity
average product of labor for an entire industry or for the economy as whole
stock of capital
total amount of capital available for use in production
technological change
development of new technologies allowing factors of production to be used more effectively
isoquant
curve showing all possible combinations of inputs that yield the same output
marginal rate of technical substitution (MRTS)
amount by which the quantity of one input can be reduced when one extra unit of another input is used, so that output remains constant

- change in capital input/ change in labor input
returns to scale
rate at which output increases as inputs are increased proportionately
increasing returns to scale
output more than doubles when all inputs are doubled
constant returns to scale
output doubles when all inputs are doubled
decreasing returns to scale
output less than doubles when all inputs are doubled