ABSTRACT
Explain the concepts of a firm’s technology and associated produc-• tion function Distinguish between the short-run and long-run production periods• Derive a short-run production function• Explain and calculate the marginal physical product of an input• Distinguish between increasing, constant, and diminishing returns • to a factor
A production function asserts that the maximum output of a technologically determined production process is a mathematical function of input factors of production. A firm’s option for combining inputs into outputs is called its technology. The firm’s technology is summarized by its production function. A production function shows the maximum output that can be produced from any given combination of inputs:
Q = F(L, K)
where Q = Units of output L = Units of labor input K = Units of capital input
Thus, a production function can be described as the specification of the minimum input requirements needed to produce designated quantities of output, given available technology.
