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The production function can have many uses. It can be used to compute least-cost factor combination for a given output or maximum output combination for a given cost. Knowledge of production function can be helpful in deciding on the value of using a variable factor in the production process. As long as marginal revenue productivity of a variable factor exceeds its price, it would be profitable to increase its use. When marginal revenue productivity of factor becomes equal to its price the extra employment of the factor must be stopped. Because the production function demonstrates the returns to scale it would help in the decision making. If the returns to scale are diminishing, it's not worthwhile to increase production. Opposite would be true if returns to scale are increasing.
Q. Causes for diseconomies of scale? The most significant cause for diseconomies of scale is the diminishing returns to management. As the output grows beyond certain level the
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wHAT IS THE SIGNIFICANCE OF EXPECTATION ELASTICITY ?
Q. Optimal Input Combination for Maximisation of Output? Equilibrium conditions of the firm are identical to the above situation which is, iso-cost line must be tangent to the
Assume that input prices are constant at r = 1, w = 1, with technology which consists of 5 processes having the following properties: Process Inputs Capital (machine hours)
Organization for Economic Development (OECD) An international organization found in Paris France in 1961, to act as a worldwide forum to stimulate world trade and
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BU 5210 Final Summer 2013 Economic Analysis
Inelastic Supply Supply is said to be price inelastic if changes in price bring about changes in quantity supplied in less proportion. Thus, when price increases quantity sup
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