In: Economics
Firm is a commercial enterprise which is involved in buying/ selling of goods and/or services with the aim of earning profits. Its primary goal is to maximixe the wealth of its owners.
Production function is a function which shows the relationship between quantities of inputs employed and quantities of outputs generated from them. When there is only one input changing (short term like), the production function shows a diminshing marginal returns to factor input. This means that initially eah unit of variable input added will lead to higher output but as the other input is fixed, after a certain level, there is excess of variable input as compared to the fixed input. Thus, initially it is rising, reachea its maximum and then starts falling.
Short run can be referred to the time period where atleast one factor input is invariable whereas in long run all the factor inputs can be changed. Example- it is difficult to change machinery in factory only after 6 months(short run) but it is doable in 4 years (long run).
APL is average product of labor calculated by dividing the total output by number of people employed.
APL = Output/L
MPL = Output/L
APL is rising as long as MPL > APL , APL cuts MPL from below and then falls as long as MPL < APL.
Isoquants are combinations of input that yield the same output level. The resulting output is constant along an isoquant.
Slope of isoquant = Marginal rate of technical substitution. when two inputs are L & K, the MRTS = K/L which is negative as movement along rhe curve would mean shift from one input to another.