LECTURE NOTES

Tasneema Afrin
Assistant Professor
IBA,DU
PRODUCTION
THEORY
Salvatore#7
Production
Production Function

■ Total Product
■ Average Product
•Fixed Inputs ■ Marginal Product

•Variable Inputs ■ Law of Diminishing Return

•Short Run

•Long Run
 Isoquant
An isoquant is a curve that shows all the
combinations of inputs that yield the same level
of output.

• Negatively sloped

• Convex to the origin

• Never intersect

• The marginal rate of technical

substitution (MRTS) is an economic theory
that illustrates the rate at which one factor
must decrease so that the same level of
productivity can be maintained when another
factor is increased.
Economic
Region of
Production
• Firms will never produce on the
positively sloped portion of the
Isoquant

• Ridge lines will separate the relevant

from the irrelevant portion of the
Isoquant
 COSTS OF
PRODUCTION
Salvatore#8
Short run Costs
Per-unit Costs
Isocost
Least Cost Input Combination (LCIC)