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3. The Organization of Production
Inputs
Labor, Capital, Land
Fixed Inputs
Variable Inputs
Short Run
At least one input is fixed
Long Run
All inputs are variable
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7. Production Function with One Variable Input
Total Product
TP = Q = f(L)
MPL =
TP L
Marginal Product
APL =
TP L
Average Product
EL =
MPL APL
Production or Output Elasticity
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11. Optimal Use of the Variable Input
Marginal Revenue Product of Labor
MRPL = (MPL)(MR)
Marginal Resource Cost of Labor
TC L
MRCL =
Optimal Use of Labor
MRPL = MRCL
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14. Production with Two Variable Inputs
Isoquants show combinations of two inputs that can produce the same level of output.
Firms will only use combinations of two inputs that are in the economic region of production, which is defined by the portion of each isoquant that is negatively sloped.
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18. Production with Two Variable Inputs
Marginal Rate of Technical Substitution
MRTS = -K/L = MPL/MPK
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22. Optimal Combination of Inputs
Isocost lines represent all combinations of two inputs that a firm can purchase with the same total cost.
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26. Production Function Q = f(L, K)
Returns to Scale
Production Function Q = f(L, K)
Q = f(hL, hK)
If  = h, then f has constant returns to scale.
If  > h, then f has increasing returns to scale.
If  < h, then f has decreasing returns to scale.
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29. Empirical Production Functions
Cobb-Douglas Production Function
Q = AKaLb
Estimated Using Natural Logarithms
ln Q = ln A + a ln K + b ln L
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30. Innovations and Global Competitiveness
Product Innovation
Process Innovation
Product Cycle Model
Just-In-Time Production System
Competitive Benchmarking
Computer-Aided Design (CAD)
Computer-Aided Manufacturing (CAM)
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