The document discusses production theory, which forms the foundation of supply theory. It covers key concepts such as: 1) Short-run vs long-run production and the fixed and variable nature of inputs. 2) Production functions and the relationship between total, average, and marginal product. 3) The law of diminishing marginal returns and the three stages of production. 4) Isoquants, isocost lines, and how firms determine optimal input combinations to minimize costs.

1. THEORY OF PRODUCTION

8. Short run labour Total product Average product Marginal product 1 10 10 10 2 24 12 14 3 39 13 15 4 52 13 13 5 61 12.2 9 6 66 11 5 7 66 9.4 0 8 64 8 -2

10. P: Maximum Average Product Q & R : Same Average Product

14. Three Stages of Production in Short Run AP,MP X Stage I Stage II Stage III AP X MP X

17. An isoquant fig Units of K 40 20 10 6 4 Units of L 5 12 20 30 50 Point on diagram a b c d e a Units of labour ( L ) Units of capital ( K ) b c d

23. Isoquant Maps for Perfect Substitutes and Perfect Complements

25. The Marginal Rate of Technical Substitution

27. Law of Diminishing Marginal Rate of Technical Substitution :

32. Maximizing Output for a given cost

33. Minimizing Cost subject to given Output

41. Constant returns to scale fig Units of capital ( K ) Units of labour (L) 200 300 400 500 600 R a b c

42. Increasing returns to scale (beyond point b) fig Units of capital ( K ) Units of labour (L) 200 300 400 500 600 a b c R 700

43. Decreasing returns to scale (beyond point b) fig Units of capital ( K ) Units of labour (L) 200 300 400 500 a b c R

44. Returns to Scale Shown on the Isoquant Map