AP Microeconomics AMSCO Guided Notes
3.1: The Production Function
AP Microeconomics Guided Notes
AMSCO 3.1 - The Production Function
Essential Questions
- What is the production function, and how do businesses use it?
I. The Production Function
1. What is a production function and what relationship does it show?
2. How do businesses use the production function to make decisions about production?
II. Factors of Production
1. What are the three classic factors of production and what does each represent?
2. What is entrepreneurial talent and how does it function as a factor of production?
III. Using the Production Function
1. What are fixed inputs and why do they limit a firm's ability to increase production quickly?
A. Short-run
1. What defines the short run in production and what must be true about inputs during this period?
B. Long-run
1. How does the long run differ from the short run in terms of fixed inputs?
IV. Plotting the Production Function
1. What is total product and how does it change as a firm adds more workers?
2. What is marginal product and how is it calculated?
3. What is average product and how is it calculated?
V. Three Stages in Production
A. Stage 1: Increasing Marginal Returns
1. What happens to total output, marginal product, and average product during Stage 1?
2. Why does adding workers in Stage 1 lead to increased productivity for all workers?
B. Stage 2: Diminishing Marginal Returns
1. What is the law of diminishing marginal returns and when does Emily experience it?
2. How do marginal product and average product change as Emily continues to hire workers in Stage 2?
C. Stage 3: Negative Marginal Returns
1. What are negative marginal returns and what causes them to occur in Emily's flower pot shop?
VI. Applying the Model
1. What challenge do business owners face when using production models to make real-world decisions?
Key Terms
production function
inputs
outputs
factors of production
fixed inputs
short-run
long-run
total product
marginal product
average product
stages of production
diminishing marginal returns