M B A 8620 Chapter Notes - Chapter 5: Substitute Good, Isoquant, Indifference Curve

• School: Clemson University
• Department: Business Administration
• Course: M B A 8620
• Professor: Ron Gregory

Document Summary

In the long run, no inputs are fixed. Period in which at least one variable is fixed. Assumptions: capital is fixed, labor is variable. How extra workers affect the total product: marginal product of labor. How much a unit of labor will increase output (the change) Mpl = q/ l: average product of labor. Whether an output will rise in proportion to the extra labor. Next to the supply and demand theory, the dmr is the most commonly used economic phrase. If a firm keeps increasing an input, holding all other inputs and technology constant, the corresponding increases in output will eventually become smaller (diminish) Isoquants: curve that shows the efficient combination of labor and capital that can prodice the same level of output (quantity) Major difference between an isoquant and an indifference curve is that isoquants hols quantity constant and indifference curves hold utility constant.