Chapter 6 Production

6.0
-The production decision of the firm
    1)Production Technology:We need a practical way of describing how input can be transformed into outputs.
    2)Cost Constraints:Firms must take into account the price of labor, capital and other input.
    3)Input Choices:Given its production technology and the price of labor, capital and other inputs, the firm must choose how much of each input to use in producing its output.

-Theory of the firm:Explanation of how a firm makes cost-minimizing production decisions and how its cost varies with it output.

6.1
-Factors of production: Inputs into the production process
-Production function:Function showing the highest output that a firm can produce for every specified combination of inputs.

-Short run:period of time in which quantities of one or more production factors can not be changed.
-Fixed input: production factor that cannot be varied
-Long run: Amount of time needed to make all production inputs variable.

6.2
-Average product:Output per unit of a particular input
-Marginal product:Additional output produced as an input is increased by one unit.
-When the marginal product is greater than the average product, the average product is increasing.
-The marginal product must equal the average product when the average product reaches its maximum.

-Law of diminishing marginal returns: Principle that as the use of an input increases with other input fixed, the resulting additions to output will eventually decrease.

-labor productivity:Average product of labor for an entire industry or for the economy as a whole
-Stock of capital:Total amount o capital available for use in production
-Technological change:Development of new technologies allowing factors of production to be used more effectively

6.3
-Isoquant: curve showing all possible combinations of input that yield the same output.
-Isoquant map:Graph combining a number of isoquants, used to describe a production function.

Marginal rate of technical substitution(MRTS):Amount by which the quantity of one input can be reduced when one extra unit of another input is used,so that output remains constant 

-Two sPECIAL CASES
    1)perfect substitutes for one another
    2)Fixed-proportions production function: Production function with L-shaped isoquants, so that only one combination of labor and capital can be used to produce each level of output

6.4
-Return to scale: Rate at which output increases as inputs are increased proportionately
-Increasing returns to scale:Output more than doubles when all inputs are doubled
-Constant return to scale:Output doubles when all inputs are doubled.
-Decreasing returns to scale:Output less than doubles when all inputs are doubled.