econ definitons (chapt 7)
Terms
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- average product
- Total product divided by units of input employed
- constant returns to scale
- When a given percentage increase in all inputs leads to an identical percentage increase in output
- continuous production function
- Production function where inputs can be varied in an unbroken marginal fashion
- decreasing returns to scale
- When output increases at a rate less than the proportionate increase in inputs
- discrete production function
- Production function with distinct input patterns
- economic efficiency
- Achieved when all firms equate input marginal revenue product and marginal cost (maximize profits)
- expansion path
- Optimal input combinations as the scale of production expands
- increasing returns to scale
- When the proportional increase in output is larger than an under-lying proportional increase in input
- input substitution
- Systematic replacement of productive factors
- isocost curve (or budget line)
- Line of constant costs
- isoquant
- Different input combinations used to efficiently produce a specified output
- labor productivity
- Output per worker hour
- law of diminishing returns
- As the quantity of a variable input increases, the resulting rate of output increase eventually diminishes
- marginal product
- Change in output associated with a 1-unit change in a single input
- marginal rate of technical substitution (MRTS)
- Amount of one input that must be substituted for another to maintain constant output
- marginal revenue product
- Amount of revenue generated by employing the last input unit
- multifactor productivity
- Output relative to the combined inputs of labor, capital, and intermediate purchases
- net marginal revenue
- Marginal revenue after all variable costs
- output elasticity
- Percentage change in output associated with a 1 percent change in all inputs
- power production function
- Multiplicative relation between input and output
- production function
- Maximum output that can be produced for a given amount of input
- productivity growth
- Rate of increase in output per unit of input
- returns to a factor
- Relation between output and variation in only one input
- returns to scale
- Output effect of a proportional increase in all inputs
- ridge lines
- Graphic bounds for positive marginal products
- technical efficiency
- Least-cost production of a target level of output
- total product
- Whole output from a production system