ECON 100A Chapter Notes - Chapter 6: Isoquant, Diminishing Returns, Factors Of Production
Document Summary
Theory of the firm: explanation of how firm makes cost-minimizing production decisions and how its cost varies with its output. Firms eliminate need for every worker t negotiate every task that he or she will perform. Factors of production: inputs into the production process. Materials: goods that firm buys and transforms into final products. Production function: function showing highest output that firm can produce for every specified combination of inputs. Equation relates quantity of output to quantities of the two inputs. Function describes what is technically feasible when firm operating efficiently. Short run: period of time in which quantities of one or more production factors cannot be changed. Fixed input: production factor that cannot be varied. Long run: amount of time needed to make all production inputs variable. Decisions made in short run are very different from long run: short run: firms vary intensity with which they utilize given plant and machinery, long run: vary size of the plant.
