Production Function
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Transcript of Production Function
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Production Function
A production function shows the functional relationship given by technology between a firm’s physical rates of input and its physical rates of output per unit of time.
TPP = f ( a, b, c, … )
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Characteristics of a Production Function
Production refers to the transformation of inputs into output;
A production function is a flow concept; A production function is a physical,
technological, or engineering concept, and yet it has an economic dimension to it; and
In production analysis, factors of production can be separated into fixed and variable factors.
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Value Relationships
Value Total Product (TVP)
VTP = TPP * P Value Marginal Product (MVP)
VMP = MPP * P Marginal Revenue Product (MRP)
MRP = MPP * MR Marginal Factor Cost (MFC)
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Functional Relationships in Value Terms
Input TPP MPP Price TVP MVP MFC3 50 20 $5 $250 $100 $254 65 15 5 325 75 255 75 10 5 375 50 256 80 5 5 400 25 257 83 3 5 415 15 258 84 1 5 420 5 25