The document discusses various concepts related to production and costs, including: 1. Production involves converting inputs into outputs through organized activities to create value and utility. The main factors of production are land, labor, capital, and organization. 2. Production functions show the relationship between physical inputs and outputs. Total, marginal, and average product are discussed for functions with one variable input like labor. 3. Optimal use of variable inputs occurs when marginal revenue product equals marginal resource cost. Production with two inputs is discussed using isoquants and isocost lines.

3. Production Function With One Variable Input Total Product Marginal Product Average Product Production or Output Elasticity TP = Q = f(L) MP L =  TP  L AP L = TP L E L = MP L AP L

4. Production Function With One Variable Input Total, Marginal, and Average Product of Labor, and Output Elasticity

5. Production Function With One Variable Input

6. Production Function With One Variable Input

8. Optimal Use of the Variable Input Marginal Revenue Product of Labor MRP L = (MP L )(MR) Marginal Resource Cost of Labor MRC L = Optimal Use of Labor MRP L = MRC L  TC  L

9. Optimal Use of the Variable Input Use of Labor is Optimal When L = 3.50

10. Optimal Use of the Variable Input

11. Production With Two Variable Inputs Isoquants show combinations of two inputs that can produce the same level of output. Firms will only use combinations of two inputs that are in the economic region of production , which is defined by the portion of each isoquant that is negatively sloped.

12. Production With Two Variable Inputs Isoquants

13. Production With Two Variable Inputs Economic Region of Production

14. Production With Two Variable Inputs Marginal Rate of Technical Substitution MRTS = -  K/  L = MP L /MP K

15. Production With Two Variable Inputs MRTS = -(-2.5/1) = 2.5

16. Production With Two Variable Inputs Perfect Substitutes Perfect Complements

17. Optimal Combination of Inputs Isocost lines represent all combinations of two inputs that a firm can purchase with the same total cost.

18. Optimal Combination of Inputs Isocost Lines AB C = $100, w = r = $10 A’B’ C = $140, w = r = $10 A’’B’’ C = $80, w = r = $10 AB* C = $100, w = $5, r = $10

19. Optimal Combination of Inputs MRTS = w/r

22. Returns to Scale Production Function Q = f(L, K)  Q = f(hL, hK) If  = h, then f has constant returns to scale. If  > h, then f has increasing returns to scale. If  < h, the f has decreasing returns to scale.

23. Returns to Scale Constant Returns to Scale Increasing Returns to Scale Decreasing Returns to Scale

24. Returns to Scale Returns to Scale Constant Returns to Scale Increasing Returns to Scale Decreasing Returns to Scale

32. Short-Run Cost Functions

35. Long-run average cost curve

37. Learning Curves

46. Cost-Volume-Profit Analysis

47. Operating Leverage