The production process: The bahaviour of profit maximizing firms

4 important questions on The production process: The bahaviour of profit maximizing firms

Which basic decisions do firms take to maximize their profit?

- How much output to supply?
- Which production technology to use?
- How much of each input to demand?

What is the normal rate of return?

A rate of return of capital that is just sufficient to keep the owners and investors satisfied. E.G. Slide 5 => they should stop its business because the opportunity cost with the risk free trade of 10% could have been 1000$.

What does the term 'price taker' mean?

The price of the output in a perfect competition.
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Explain the different production process functions:

-Production function :The mathematical relationship between inputs and outputs

- Total product : Total output (production volume) with a certain amount of input (for example labor)

- Marginal product: Additional output that can be produced by hiring one more unit of a specific input, holding all other inputs constant.

- Average product : Average amount produced by each unit of a variable factor of production.

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