Notebook # 21 -Economics 5-2

The Theory of Production

Economics 5-2

The Theory of Production

• Has the quality of your work ever declined because you worked too hard at something?

•Sometimes you reach a stage where you still make progress but at a diminished rate.

ESSENTIAL QUESTION:

Economics 5-2

The Theory of Production

GPS STANDARDS:

SSEMI2-

a.) define the law of supply and demand

Economics 5-2

The Theory of Production

– Whether they are film producers of multimillion dollar films like Titanic, The Dark Knight, OR Avatar

– small companies that market

a single product

– suppliers face a difficult task……

Economics 5-2

The Theory of Production– Producing an economic good or service

requires a precise combination of land, labor, capital, and entrepreneurs.

Economics 5-2The Theory of Production

•The theory of production deals with the relationship between these factors of production and the output of goods and services.

• The output of goods and services produces the supply

Economics 5-2The Theory of Production

• The theory of production generally is based on the short run, a period of production that allows producers to change only the amount of the variable input called labor.

Economics 5-2The Theory of Production

• This contrasts with the long run, a period of production long enough for producers to adjust the quantities of all their resources, including capital.

Economics 5-2The Theory of Production

• For example, Ford Motors hiring 300 extra workers for one of its plants is a short-run adjustment.

• If Ford builds a new factory, this is a long-run adjustment.

Economics 5-2Figure 5.5aFigure 5.5a

Economics 5-2

Figure 5.5bFigure 5.5b