Temple University

Economics 201

Microeconomics and Behavior

Chapter 9

The Input-Output Relationship, or Production Function
    Inputs (Land, Labor, Capital, Energy) ----> Output
    Black box, rule, or recipe?
    Fixed and variable inputs
    The long run and the short run

Production with one variable input
    The law of diminishing returns

Total, Marginal and Average Product
    Average product = Output/input, or the slope of a ray from the origin through a point on the production function
   Marginal product = slope of the production function
   Marginal product cuts average product from above.
    Three stages of production 

The Average - Marginal Distinction
    Allocate your inputs on the basis of incremental additions to output, not average.

Production with two variable inputs - The long run
    The isoquant
    Isoquants v. indifference curves - ordinal versus cardinal labels
    Marginal Rate of Technical Substitution

Returns to scale
    Decreasing, constant and increasing
    The law of diminishing returns and returns to scale.