Faculty of Engineering

University of Moratuwa
Intake 20, Semester 5
Session 06 – Theory of Production

1. Explain the Law of Diminishing Marginal Returns and provide an example to illustrate it.

2. Differentiate between the short run and the long run in the theory of production.

3. Describe what an isoquant is and its role in production analysis.

4. How does a firm determine the optimal combination of inputs to maximize its output or
profit?

5. Give an example of a production function and calculate the marginal product of one of
the inputs. (ex:- Q = 5L0.5 * K0.5)

6. Explain the concept of economies of scale in the long run and how it is related to
production.

7. How does technological change impact a firm's production process and the theory of
production?

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8. In the context of production, what is the difference between fixed inputs and variable
inputs?

9. How does the theory of production help businesses make decisions regarding resource
allocation and output levels?

10. A textile factory has a production function Q = 50L0.6 * K0.4, where Q is the number of
units produced, L is labor input, and K is capital input. Given that the price of labor is
$15 per unit, and the price of capital is $30 per unit, calculate the long-run cost of
producing 500 units of output.