1. The Production Function

2. Firm Behavior Firm’s have an economic goal to maximize profits
Profits = Total Revenue – Total Cost
Maximum Profits

3. Production Function
Production function- the relationship between Qty of inputs and Qty of output
Production
Function
Labor
Capital
Natural Resources
Entrepreneurial Talent
OUTPUT
Known as
Total Product

4. Measuring Output
Marginal product - the increase in output that arises from one additional unit of input
Gain 5 more
computers
Add 1 worker

5. Law of Diminishing Marginal Returns
As you increase inputs—beyond some point----marginal product declines
Example: As more and more workers are hired => each additional worker contributes less to production

6. Production Function
Output.
Inputs

7. Label these

8. The slope of the production function measures the
marginal product of an input
Quantity of output
As marginal product declines,
the production function becomes flatter
Number of Workers Hired

9. Production Function TP AP MP

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