Transcript Functional Relationships in Value Terms

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, … )
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.
Value Relationships
 Total Product (TVP)
TVP = TPP * P
 Marginal Value Product (MVP)
MVP = MPP * P
 Marginal Revenue Product (MRP)
MRP = MPP * MR
 Marginal Factor Cost (MFC)
Functional Relationships in
Value Terms
Input TPP MPP Price TVP MVP MFC
3
50
20
$5 $250 $100 $25
4
65
15
5
325 75
25
5
75
10
5
375 50
25
6
80
5
5
400 25
25
7
83
3
5
415 15
25
8
84
1
5
420
5
25