1. A firm should operate well on the first stage.

The first stage is called the stage of increasing

returns to the factor of production. Stage one is the period of most growth in a company's
production. In this period, each additional variable input will generate more products. This
signifies an increasing marginal return; the investment on the variable input compensates the cost
of producing an additional product at an increasing rate. For example, if one employee produces
five units by himself, two employees may produce 15 units between the two of them. All three
curves are increasing and positive in this phase.

While the second stage is also known as stage of diminishing returns. Stage two is the period
where marginal returns start to decrease. Each additional variable input will still yield additional
units but at a decreasing rate. This is because of the law of diminishing returns wherein output
gradually decreases on each additional unit of variable input, holding all other inputs fixed. For
example, if a previous employee added nine more units to production, the next employee may
only add eight more units to production. The average and marginal curves both start to decline.

Lastly, the third stage is called the stage of negative returns. In stage three, marginal returns start
to turn negative. Adding more variable inputs becomes ineffective. Here an additional source of
labor will lessen overall production. For example, hiring an additional employee to produce units
will actually result in lesser units produced overall. This may be due to factors such as labor
capacity and efficiency limitations. In this stage, the average product curve continues its descent
and the marginal curve becomes negative.

2. Yes, I agree that the cost of production is determine with input prices and available
technologies.

These two factors greatly affect the production. Technology is a tool a firm used to turn inputs
into outputs of goods and services.. Technology in production means equipment and machinery
that produces a tangible product for business. This is also used to assure product quality and
reduce production cost. These are essential to a firm for them to do business at ease. Example,
there are technology used on inventory management which is used on tracking the in and out of
inventories in and from the stock area. Also, most of business process outsourcing company uses
technology as their major tool on delivering their product and services.

Inputs on production includes labor, capital, materials, power, land and building that are directly
related on producing a product or service. These inputs purchased from other firms will
eventually incurred cost. There are various types of input cost that a firm may incur in
manufacturing a product or offering a service. These cost can be classified into two: fixed and
variable.

Fixed Cost are expenses that will remain unchanged even when there is zero production or when
the production is at its maximum capacity. Example of these are lease expense for machine used
on production and rental expense on building or land where the production is located.

While variable cost are expenses that varies on the number of production. There will be no
variable cost once the production becomes idle, increase when the volume of production is high
and decreases when the production volume is low. Example of these are light and water
expenses, raw materials, direct labor and variable overhead costs.