PRODUCTION FUNCTION & UTILITY CHARACTERISTICS

THE PRODUCTION FUNCTION :

Maximum output 'Q' that  a firm can produce for every specified combination of inputs.

-> LABOUR (L)
-> CAPTIAL (C)

 -> Q = F(K,L)

The SHORT RUN refers to a period of time in which one or more factors of production cannot be changed.

Factors that can be varied over this period are called FIXED INPUTS

LONG RUN refers to a period where in all inputs are variable. Many inputs can also be changed.

CAPTIAL(constants): steel plants ,aluminium plants, educational institutes , technology , raw materials(composition cannot be changed) , machinery .

LABOUR : can be changed in short run .




UTILITY CHARACTERISTICS:

Principle of diminishing marginal utility:

the more of a good that one obtains in a specific period of time, the less the addiional utility derived from an additional unit of the good

Utility dimensions overtime : 

the shorter the time period , the more quickly marginal utility diminishes

Consumers are not identical :

the sale at which marginal utility diminishes depends on individual tastes and preferences and so differs across consumers.

examples:
unlimited calls and messages
advertisements
movies
fashion industry
daily bus passes
amusement parks