Firms transform resources into goods and services, and the way they do this affects how much they can produce and what production costs. This lesson introduces the production process, the main factors of production, production functions, and the distinction between fixed and variable inputs.
Production is the process a firm uses to transform inputs into outputs. For a pizza restaurant, ingredients and labor are combined with equipment and methods to make pizzas that customers can buy.
All flashcards
What is production?
Production is the process a firm uses to transform inputs—such as labor, materials, and equipment—into outputs, or goods and services.
What is physical capital in economics?
Physical capital consists of machines, tools, equipment, and buildings used to produce goods and services. It does not mean money or financial capital.
What does a production function show?
It shows the technical relationship between the amounts of inputs used and the amount of output a firm can produce.
How do fixed and variable inputs differ?
Fixed inputs are difficult to adjust in a short period, while variable inputs can be increased or decreased relatively quickly.
How are the short run and long run defined?
In the short run, at least one factor of production is fixed. In the long run, all factors of production are variable.
Quiz questions
A crew cuts 12 trees per hour with three workers and 13 trees per hour with four workers. What is the fourth worker's marginal product?Answer: 1 tree per hour
When does the law of diminishing marginal product apply?Answer: When adding a variable input to a fixed input eventually lowers that variable input's marginal product, other things held constant.
A two-person saw is more effective when operated by two workers than by one. Why might the second worker have a higher marginal product than the first?Answer: The workers can complement each other in using the saw.
If a worker's marginal product is zero, what happens to total product when that worker is added?Answer: Total product remains unchanged.
How can adding workers eventually produce a negative marginal product when equipment is fixed?Answer: Crowding or interference can reduce the crew's total output.
Based on Principles of Economics 3e by Steven A. Greenlaw, David Shapiro, Daniel MacDonald (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.