2

nopte7- Pooduocion Theony lesnooubool

penspe ive UHIty mouimizabon
Consumens Consumep sadisfaation

Peoduehion
Peoduetion penspechve
Peo tobiliy

a Main okjeative o he fiem Tboo

iem maumizing prroit
not shareholdepis weath

gr sdonov
eteps to inal oudpud
Paaduckion

oinputs into outputs

toanstoemakion
to ot Lotal Loro
>Saetops o pmoduckion

aokoeLoaq g Lonpao/
Frodudion
*Fixes inputs you annot hange Ovepnighd
huge investmert hinme eonsuming)

Can hange easily

#Vdpiable inpuds you

#Shopt un all inputs Can

not be vaeiel, at least
one is ixed

inputs ane vadiable

# Long nun all

Comined on time frame

not
solely
29

Pooducion Fuc Functionesnekou benl-F asfqs

Dieed Pelationdrip odween input and outpud (ppoduchon)

odo6oe9
delho oogensgobod
TP
LoDR
Pooduor

s6losols fcn MP
AP

Vamoble input
bughuon assq noroubo
tTotal Peoduct

Aveeage Produa-Totod prooduetion /Total no. ot manpowen

o
Manain a ppoduot= Extreo produckion oom one extea
manpoen ofobbos
feinasvo
APL TP/L
TsffSv MPLATP AL
vies tugn slaiogby
Law ot Diminishing Detupn-At the Point
pont MP
MP
160 So fonnap
stants todealine

odditional units of he vapiable inpu ho less and

less o ined inputs to wopk wim)
30

T9
when AP is isina, MP will ao up at a
highen
VeLU
ade han AP

J914
TAM
AP Constand AP & MP eunve will intensedt

APstallina,
AP MP i go doon at a highen
ade than AP

nokoukoa
1soquant
imilar oh indifenenceaueve peel
eol
hat showS Combination o1 two dHepent
a ueve
in puts thot gives same leve outpud (pooduchion)

Capital+ labon
Capi tal
Same ohanackepishias
E
Neaadively sloped K
A

Convex to he opigin -30

2 = 2o

Never inteng ect 10

L L2
Lobon
sod Tsoquant ounve jso quant
map
31

MRTS Marginal Rde oTeohnial Substrution

lope ot isoquard aunve

9A
MPL
MRTS =
h 3 V e 9m MPK AL XMPL - AK MPK
AK
AL
94 or

Econ omi Region oProduation (Vvi

Isoquant 'Can' be positivelysloped, bu preodudon

will not be eicient you Worpk on the positively
sloped paet oigoquant O1e prooduee
(ooids
odl lof
A Ridge lines

igsd0s00 smbe

apital sgolè itusie b

400
.300
200

/100

Labon
 Ssolid ines negokivel sloped
dothedlines > positivey sloped
u0 not0uboo eSpoml90a9/0
The line whd sepopatege soliA2 doted lines
Ridge
Ridge line 9HTT

E conomic Reaion ot Production naion inside the

Hwo idge Unes
tugtuo
Gwhepe you on produle youn poaducke ith
N i n g s MoDe

TiL Gs9
Evee
Even Point ofuppen pidge line slope ot isoquants = o

O
slope o isoquants
=
line
Eyeey point ot lowen pidoe

Fop exonple, At Hced labon T, you inerease pital,

For
will incoease betuween the eonomic
youp pooduotion
capital beyond he uppep
0enion 1 you in CReaSe
ape no mope on he same isoquand
pidae Line,you whion means,
al down to a loer S0qulant. mangi nal
You
You
o Qapital is aoing down At dPoint tail
pooduttion
will be ininity(MRTS-MPL
b ecome zeo s0, the slope MPK
MRTS =MPL=o
Alowep eidge line MPKSied
33

ahapter &- Costs o Pooduion

Cost Oupve -Swiieoq

mipeon images o Pooduekion
(Shont un) 00st ro99
T= T E
T
+TVe
TV
ien oigs.q TF
A

Output
daobeog auoy sDubong
TFC Fixe we cannot vany itoveenight
may dhange
(
frueeos
in the long nun) per unt)
9uva
Point A la o diminishing deupn
pdownwd
upto
upto A Tve pises a a decneasing nate
oc7
Past A Tve eises at on inypeasinq Pate
upw apd
lalsl,
a point A manaina pnoduokion ants dropping
S0, vapjable cost stopts oing up
fu
3rmoss
34

Pep-unit Costs T T 3VA A

ATC
ML

AvC
SVTA M-ATC

AFC
M-Ave
Oudput
9 AFC 1 not ined will deop down
MC ve is ike tiok mapk aill doop douwn

Sipst then wll go up and inters eat Ave

nar n&ATC UuDve from belouw
9M fro tasagstai
minimum point o Me is o a smallen level of
290
oudputhon hod o Ave & AT Cunves.

AAVC& ATC ueves ape U- shoped

sgane-U
Wh MC s lowen?

c0sts to all, manginal Cost must

Fo av
be louwen. Fo avg. 0ost to oise, M must
be highen. Also when avg aost is onstant
(botom o AVC ATL Cunve) Me is egual to
intenseetion of Me &AveAT
Glnem
 35

ATCT nd TFa
ATC= AFC+ AVC

AS ATVC ATC
Avc-TV MA =

w a g e pate
f e n Aa Aa
labon
WXL no. 0
AwD L wAL
A Aa A
W W W W
APL MPL
fonA
60, AV is invensely pRopoptiona o APL
3VA
APL in coeases 4o a maumum and hen dlecneases

Lintepseat with MPL

Avt decpeases to a minimum hen inen eases
ond
OTA VA intenseck csith Me

2SvoyD TA VA B
AVC V-shaped because
ghopt un Law of iminsning peuen

long pun pelupns o Scale

i nineasin constant- deanias d

+inpt 1o
ineroeasn

+input 1o% +tpud Jo0

pessin
+Ouput10 +Outpud J07 oudpu 410

STALS ConstartR
ESminimum eicient scole)
36

same concept as budgeB line

Mas/
20 20
ez4O
40

o/M
apital

1 20 30 40

e mqi
obon
oibaskl
foubeq
Combinatio n ot Kabon & Capital thol gives
gives Same

total cost is000st line.

oksluone pk = TL- wL
wL + nK

petuen KT
rafn9 299iq0bd
Least Cost Input Com bination
tangent to
lso ost is

1soqant

M both slope ane eaual

200
minimi2inq cost,
malimizing profit
vool nore MPL
egoio MPK
hapten Poide and output undeo Pepteet Competition
S Espbud qsono
DiHepent Manke Shoucduees

Pecfea Lompetihion
Man
Many ipms (many blyeps, many sellens)
(do not have any cortoo) oven
paice
ldentical products (al ipmg sell same
produats - not addig escpa featuoes
ao dal to difenentiat e)
Sil feoso
Full knowledge eveeyone has Sull set of
1nfo about pRiesand Costs)
ST tGufse
No banpiens to entoy o finms

Example: Aapiculkune manke , Fopeign exohange Mapket

intepne industny
TfoAURO

Mono poly
itoag Sipm in mapke

Hem manke shape 100,

aen enally gov-natunal monopoly)

 pupe monopoly- Siom has 0ontool oven enhine
suPPly ahain)
Unique Produc no close substihute
Apbsnsosab ob oaq TA0ngie -highen poie)
Complete banpieps to entoy
Sountssoro/o
SigniHicant manket powen
to Lontool ove ppice

Mono polistic compehitiondold lqrosky3

loge Manyioms 9uiuod
Firm Sze Smal

Poodu enentiation mted

(simi lan produots bud not he same)

(Can dhange slightiy highen pore)

qno Eosy entoy and euts of ioms
llsoog olonueb bruss

Eyample Toothpaste Restaunent business, ci othings

ot breads
Snoes, D;Mepent kind
Shoes,
lsego SunowasJocalg a - d - 9
39

Oligopoly:m plegorcon u )

Few em s
>Lange manket shane
Signiticant pnoduod dilenentiation possible
POssible
elges
Ho expand the manke shane

Diiault to enten manket

Exdople Mobile opepadops heilegonoM

Stoutures within Stnuatues monopoly nside

one Se a oligopoly
E P monopol însi de mobile openator manke.
fon tud oubeag 9oime
blepnonlo nub )
Preo-4it Mavamization pentedly Compekitive manka.
Demand uove is no downwadds, padallel to
-aas nsou STepqa
ol ppice Dve manginal pevenue
dudve

- P - D-MR Manginal pevenve oSor selng one

extea Unit t l
always be samt
ppite
40

Cost
and Manainal ost
Preide
( 5 pen
unt Avepa4 e tost (T

Demand= Poitez MR
G00
o
A20 Peolit TR-T
wgtuo
345 P.a- AC.
-Aa
3 44 55 78 00-4-2) 58
O
10,440
Output (4ens of units pen day)

S//0/
A
A Proti- mauimizinq Sm
iem adjusts ouput undil marginal
8034 ineneases to manginaloevenue P=MC in egulibnn

TA = 0 =9
ATO AVC AFCe
MLeuVe

otowkos slloe
Supply Cupve
OTA
oc
al
MR-Me Peoltmaumain aitenia
MC should be pising
beyond hat
 Me AT
Cost Peioe MC
, ATC MR

AV Poofit
395 / N T I
M AV
300
MR
260
MR
osg minimizahon
|4
Outpu M ATL
MR
BEP

o P= D= MR > ATL Poot

d
Jonioo ATC > P- D - MR Av
Minimi2ing l0Ss
P D =MR= AVC lanig ao 5hudown point
Or

P - D = MR = ATC
A Beeak-even Point

19 we
we go o bulk pooduction, AFC ill come
down, 0 AT wil olso
, Come down
50 even i ppice is below ATC and above Ave,
hepeis a chonce ot ppotit in he long pun.
sd Luene 9M
4

Consumens and Pnoducens Supplus

Poice

8
Consumen
Supplus

4 T Pmodueen
3supplus

willing to Pay Manainol 0st

for ipst unit 8
8 tk For inst unit2+k
11 2nd u 7 k 2nd 3 4k
3pd k 3nd 4k
14 At 5
Ath Hk
26tk 14k
For 4 units Fop 4 units

willing to pa 26tk Peile 20 tk

MC 14k
Consumen
Poginunplus-s 6tk
20k
Pooduce0 Supplus otk

Area o the Area ohe

Uppen +oiangle lowenteiangle