Episode 3 - Production Junction - What’s Your Function?

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Sunk Cost

Production

Have to figure out what to produce because of scarcity

Production Possibilities Frontier (PPF)

Creates graphical representation to show specialization

Law of Increasing Opportunity Cost

As you specialize in one product, the opportunity cost to produce it is going to increase

Opportunity cost - basically what are you giving up? Cost associated with opportunities forgone when your resources are not put to their best alternative use - the empty building, or even owning and operating a building.

Marginal Product of Labor - MPL=change in output/change in labor input - the goal is to find the highest MPL

Point of Diminishing Marginal Returns

Production Function: Q=F(K,L) where Q is output, K is capital, L is labor

Specialization

Technological Advances

The more units produced, the less the production cost

Productivity assumes...

People act rationally

People reactive to incentives

Principal-Agent Problem

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