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AP Microeconomics
Unit 3: Production, Cost, and the Perfect Competition Model
3.1 The Production Function
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A production function illustrates the relationship between the quantity of
inputs
a firm uses and the maximum quantity of output it can produce.
Steps to define a production function
1️⃣ Identify inputs
2️⃣ Identify outputs
3️⃣ Express the relationship mathematically
Inputs in a production function include labor, capital, and raw
materials
What happens to fixed inputs when production increases?
They remain constant
Variable inputs
decrease
when output decreases.
What is an example of a fixed input in a bakery?
Oven size
Variable inputs change with the level of
production
Fixed inputs do not change with
output levels
.
Inputs in a production function include labor, capital, and
raw materials
.
Inputs in a production function are resources like labor, capital, and raw
materials
.
Outputs in a
production function
are finished goods or services.
Fixed inputs do not change with the level of
production
.
Match the type of input with its definition:
Fixed Inputs ↔️ Resources that do not change with output
Variable Inputs ↔️ Resources that change with output
The short-run production function assumes at least one
input
is fixed.
The short-run production function illustrates the relationship between labor and capital when capital is
fixed
.
What are fixed inputs in production theory?
Resources that do not change
Fixed inputs remain constant regardless of production
levels
Give an example of a fixed input in a bakery.
Oven size
Variable inputs change with
output levels
.
Match the input type with its definition:
Fixed Inputs ↔️ Resources that do not change with output
Variable Inputs ↔️ Resources that change with output
What is the formula for Average Product (AP)?
A
P
=
AP =
A
P
=
T
P
I
n
p
u
t
\frac{TP}{Input}
I
n
p
u
t
TP
Marginal Product (MP) is the additional output gained from adding one more unit of
input
The law of diminishing returns states that output increases indefinitely with more variable inputs.
False
Explain the law of diminishing returns using a farming example.
Adding more farmers reduces marginal yield
In a bakery example, what is a fixed input?
The size of the oven
Fixed inputs remain constant even when output
decreases
What are three examples of variable inputs?
Labor, raw materials, energy
Steps for understanding the short-run production function
1️⃣ Define fixed inputs
2️⃣ Define variable inputs
3️⃣ Identify labor and capital
4️⃣ Analyze the relationship between labor and capital
Fixed inputs do not change with output levels in the
short-run
production function.
In the short-run production function
Q
=
Q =
Q
=
f
(
L
,
K
)
f(L, K)
f
(
L
,
K
)
, capital is assumed to be fixed
What does the variable
Q
Q
Q
represent in the short-run production function?
Quantity of bread
Average product (AP) measures output per
unit
of input.
What is the formula for marginal product (MP)?
M
P
=
MP =
MP
=
Δ
T
P
Δ
I
n
p
u
t
\frac{\Delta TP}{\Delta Input}
Δ
I
n
p
u
t
Δ
TP
Match the production metric with its definition:
Total Product (TP) ↔️ Total quantity of output
Average Product (AP) ↔️ Output per unit of input
Marginal Product (MP) ↔️ Additional output from one more input unit
The law of diminishing returns states that the marginal product of variable inputs eventually
decreases
The law of diminishing returns applies when at least one
input
is fixed.
What happens to the marginal product of labor as more bakers are added to a fixed-size oven?
It decreases
Average product (AP) is calculated as
\frac{TP}{Input}</latex>
If 5 bakers produce 100 loaves, the average product is
20
loaves per baker.
The marginal product of input is calculated using the formula
M
P
=
MP =
MP
=
Δ
T
P
Δ
I
n
p
u
t
\frac{\Delta TP}{\Delta Input}
Δ
I
n
p
u
t
Δ
TP
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