How to define a ‘Firm’? – Roles, Objectives, and more:
a) Specialization in production.
b) Team production is more proficient than individual production in many aspects.
c) Internal control than external market transactions with a lots of transaction cost.
e) Ownership as well as management are separated.
Production Technology: Basic Analysis
a) Time periods: SR with at least one fixed input/LR with all variable inputs
b) Production function (total product curve)
Q = f (L, K) ...............(1)
Q: is maximum amount of output a firm could obtain from a given combination of inputs. Therefore inefficient management could reduce output from what is technologically possible. If we invert the equation (1) to get L = g(Q), which tells us the minimum amount of labor L required to produce a given amount of output Q, this function is labor requirement function.
TPL, MPL and APL:
APL = Q/L
Up to I (inflection point), MPL is increasing (increasing marginal returns to labor), and after that MPL starts diminishing.
Up to S, APL is increasing, so APL < MPL .
After S, APL is decreasing,
APL > MPL
Law of Diminishing Marginal Returns: Principle that as the usage of one input raises the quantities of other inputs being held fixed a point will be reached beyond which the marginal product of the variable input will decrease.
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