Page 107 - DECO405_MANAGERIAL_ECONOMICS

Managerial Economics

Notes 6.7 Summary

Production means conversion of inputs or resources into usable commodities or services.
Inputs are the resources used in the production of goods and services and are generally
classified into three broad categories — labour, capital and land or natural resources.
Production is a process in which economic resources or inputs are combined by
entrepreneurs to create economic goods and services.
An expansion path is formally defined as the set of combinations of capital and labour that
meet the efficiency condition.
Isoquants are a geometric representation of the production function. Various combinations
of factor inputs can produce the same level of output.
The marginal rate of technical substitution of L for K (denoted by MRTS ) is defined as
L,K
the number of units of input K that a producer is willing to sacrifice for an additional unit
for L so as to maintain the same level of output

6.8 Keywords

Isoquants: These are a geometric representation of the production function
Kinked isoquant: This assumes limited substitutability of capital and labour.
Marginal revenue product of labour: Marginal product of labour times the marginal revenue
from the sale of extra output produced
Production function: A function that states the maximum amount of an output that can be
produced with a certain combination of inputs, within a given period of time and with a given
level of technology
Production: Transformation of inputs into output

6.9 Self Assessment

Fill in the blanks:

1. Production refers to the .............................. of inputs or resources into output of goods and
services.
2. .............................. are the resources used in the production of goods and services and are
generally classified into three broad categories-labour, capital and land or natural resources.
3. .............................. are those that can be varied easily and on very short notice.
4. The time period during which at least one input is fixed is called the .............................. .
5. Mathematically, the production function can also be shown as: .............................. .

6. The MPP of factor is a change in .............. resulting from a change in a factor of production.
7. Linear isoquant assumes ..................... substitutability of factors of production.
8. Kinked isoquant assumes ..................... substitutability of factors of production.
9. Kinked isoquant assumes ............ substitutability of capital and labour.

10. Average Revenue is, generally, also referred to as ……………………

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