Chapter 7

What are the factors of production?

It is the transformation of inputs to outputs

These are the factors of production

It is the result that has been created by the inputs

2 types of output

It is the process by which inputs are turned into outputs

Classification of the factors of production

Remains constant regardless the volume of production

Changes in accordance with the volume of production

Two aspects of production Decision

prescribed by the resources availability and state of technology

Prescribed by profit incentives

It is the relationship between quantities of various inputs used an the maximum output that can be produced with those inputs

quantities of one or more production factors cannot be changed

The use of at least one factor of production cannot be changed

All factors can be changed

the total amount of medical ervices or goods produced

Output per unit of particular product

extra product or output added by 1 extra unit of that input while other inputs are held constant

The average product increases as the labor increases

The average product is constant

The average product will fall as labor input increases

By holding one of the inputs constant except for one and continually increasing the other input, a point will be arrived at certain point wherein the rate in the increase of output will fall

output will decrease even if there is an increase in one of the inputs

The three stages of production

Production starts at the origin until the highest portion of the average product

Highest portion of average product until marginal product is zero

Begins where the marginal product is zero until its negative range

a process of determining the output by employing the two variables such as capital and labor

a curve which shows all the possible combinations of inputs that yield the same level of output

Characteristics of isoquants

a producer is willing to give up less and less capital to gain additional amount of labor and still lie on the same isoquant

a straight line showing the different combinations of capital and labor that a firm can purchase or hire given his total outlay and the factor prices

a series of isocost lines

Relates the change in output to a proportionate change in the amount f input used

if doubling all inputs causes output to increase more than double

if doubling all inputs causes doubling of output

if doubling all inputs result to less that double output