(a) Positive and diminishing marginal productivities of the factors
(b) Constant returns to scale
(c) Satisfies Inada conditions
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Neo-classical Production Function Characteristics
The neo-classical production function is a fundamental concept in microeconomics. Let's examine the characteristics mentioned:
1. Positive and Diminishing Marginal Productivities
A key feature is that each factor of production (like labor or capital) has a positive marginal product (adding more of a factor increases output) but a diminishing marginal product (each additional unit of a factor adds less to output than the previous one). This reflects the law of diminishing returns.
2. Constant Returns to Scale
Many standard neo-classical production functions exhibit constant returns to scale. This means that if all inputs are increased by a certain proportion, output increases by the same proportion. For example, doubling all inputs would double the output.
3. Inada Conditions
The Inada conditions are theoretical properties often assumed for neo-classical production functions. They typically state:
- The marginal product of a factor approaches infinity as its input approaches zero.
- The marginal product of a factor approaches zero as its input approaches infinity.
These conditions ensure that factors are essential and that diminishing returns eventually dominate.
Conclusion
All three characteristics—positive and diminishing marginal productivities, constant returns to scale, and the satisfaction of Inada conditions—are typically associated with the neo-classical production function. Therefore, all statements (a), (b), and (c) are correct.
Important Questions from Production Function
What is constant along an isoquant?
During the first stage of a total product curve, the total product is ______
Match List I with List II
LIST I
(Production Cost)
LIST II
(Underlying Meaning)
A.
Implicit Costs
I.
Change in the total cost per unit change in output.
B.
Marginal cost
II
Total increase in costs resulting from the implementation of a particular managerial decision.
C.
Incremental Cost
III.
Inputed value of inputs owned and used by the firm.
D.
Sunk Cost
IV.
The costs that are not affected by managerial decision.
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For the following two statements of Assertion (A) and Reasoning (R) suggest the correct code:
Assertion (A): Low initial price regarded as the principal means for entering into mass market for some new products.
Reasoning (R): Firms generally enter into production of new products with excess capacity of the plant initially.
Code:
Indicate the correct code from the following types of the long run average cost curves on which the minimum average cost of production in long run can be determined:
(i) Long run average cost curve under normal production function
(ii) Long run average cost curve under linearly homogeneous production function
(iii) Planning curve
(iv) Envelope curve
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