Section 1
The Production Function
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Version 3
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Boundless Economics
Economics
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Defining the Production Function
The production function relates the maximum amount of output that can be obtained from a given number of inputs.
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The Law of Diminishing Returns
The law of diminishing returns states that adding more of one factor of production will at some point yield lower per-unit returns.
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Inputs and Outputs of the Function
In the basic production function, inputs are typically capital and labor and output is whatever good the firm produces.