What are the main Factors of Production?
Land, labor, and capital - inputs used for production.
What is Capital in production theory?
Inputs that are themselves produced goods, including physical capital (machines, equipment) and financial capital.
What is an Input Bundle?
A vector showing the quantities of all inputs used, denoted as (x₁, x₂).
What is the Technology Set?
The collection of all feasible production plans - combinations of inputs and outputs that are technologically possible.
What is the Production Function?
A function that shows the maximum amount of output that can be produced from given inputs. It represents the boundary of the production set.
What are Isoquants?
Curves showing all combinations of inputs that produce the same level of output (similar to indifference curves in consumer theory).
What is an Isoquant Map?
A collection of isoquants, each representing different output levels.
What is the production function for Fixed Proportions (Perfect Complements) technology?
f(x,y) = min(x,y) - inputs must be used in fixed ratios.
What is the production function for Perfect Substitutes technology?
f(x,y) = x + y - inputs are perfectly substitutable.
What is the Cobb-Douglas Production Function?
f(x,y) = Axᵃyᵇ where A represents total factor productivity, and a + b determines returns to scale.
What does Monotonic technology mean?
Increasing the amount of at least one input will allow production of at least the same amount of output as before.
What is Free Disposal?
The ability to dispose of inputs without affecting output, or having extra inputs that don’t reduce production.
What does Convex technology imply?
If two input combinations can produce y output, then their weighted average can also produce at least y output.
What is Marginal Product (MP)?
The additional output obtained from using one more unit of an input, holding other inputs constant: MP = Δoutput/Δinput.
What is the Technical Rate of Substitution (TRS)?
The rate at which one input can be substituted for another while maintaining the same output level; the slope of the isoquant.
What is Diminishing Marginal Product?
As more of one input is added (holding others fixed), the additional output from each extra unit eventually decreases.
What is Diminishing Technical Rate of Substitution?
As we increase one input and decrease another along an isoquant, the TRS decreases in absolute value.
What is the difference between Short Run and Long Run?
Short Run: Some inputs are fixed. Long Run: All inputs can be varied.
What are Constant Returns to Scale?
When doubling all inputs exactly doubles output (e.g., f(2x,2y) = 2f(x,y)).
What are Increasing Returns to Scale?
When doubling all inputs more than doubles output (e.g., f(2x,2y) > 2f(x,y)).
What are Decreasing Returns to Scale?
When doubling all inputs less than doubles output (e.g., f(2x,2y) < 2f(x,y)).
For a Cobb-Douglas function f(x,y) = Axᵃyᵇ, how do you determine returns to scale?
Constant if a + b = 1
Increasing if a + b > 1
Decreasing if a + b < 1
Do Perfect Substitutes exhibit constant returns to scale?
Yes - doubling inputs doubles output: f(2x,2y) = 2x + 2y = 2(x+y) = 2f(x,y).
Do Fixed Proportions exhibit constant returns to scale?
Yes - doubling inputs doubles output: f(2x,2y) = min(2x,2y) = 2min(x,y) = 2f(x,y).
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Lesson 221
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Lesson 333
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Lesson 418
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Lesson 525
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Lesson 622
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Lesson 719
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Lesson 814
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Lesson 915
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Formulas18
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Market Equilibrium27
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Technology26
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Profit Maximization28
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Cost Minimization64
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Cost Curves17
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Firm supply24
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Industry Supply26
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General Equilibrium51
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Monopoly and Monopsony42
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Oligopoly32
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Externalities5
