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ECO1010 Unit 3 Summary
A basic summary, focusing on the key concepts from unit 3 of the ECO1010 course. It's easy to understand and ideal for test/exam preparation!
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The production functionProduction function: The relationship between the quantity of inputs
(labour, in a traditional context) and the output, holding other inputs
constant.
Total product (TP): Total output plotted against the quantity of inputs.
• TP function is concave throughout (line joining two points on a curve
lies entirely below the curve).
Average product (AP): (Total output/total inputs) plotted against the
quantity of inputs.
• AP is the slope of a ray (a line from the original TP curve).
• AP decreases as more inputs are added.
Marginal product (MP): (Change in total output/change in total inputs)
plotted against the quantity of inputs.
• MP is the slope of the TP curve – this is the slope of the tangent to
the TP curve.
• MP is decreasing throughout.
• Hence, there is a diminishing marginal product.
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