vaviable inputs Soria oa dees inpubs _N) Reting Scale Vip Leng-wn aud Shert-wn cost cones Vid Echmaton of prody ction costs Witt) B reqkeven tells is Bre AL Ua _Prsine concerns Ea business managers Is achieving optimum 2Hficency tn rodvetion or minimizing cost for a given pre duction. Iherefore sia 4 Bucings s fivms encleavour Te minimize ne of of a given out put ig, maximire from _a_ Given quavdity ° puts. In their oe et minimi2e the ost ef pre diction the. ndanerten ques tons that managers are face, wit aR » Hew con waechon be ophimined o_osf minimrag|Z ei) Hew dee ut put tegpend teovehangerh qveviity of aw ‘ty Hew i techno lo ey matter dy reducin rgimfhow ala ll ear at iota ta cea AN eaSt cot Gembmafion of ‘mpule be a ae ; . G = tho hal ng ie When ong plavts ee a te The fron?ee Ss ie ali Law 4 Diminishing Returns | The law _of diminiching tins states that when moe and more unite of a variable ‘impuf are wsecl_ wilh a given qvewtty f Bred input [ee © etal aud pat may inipally increase ab an _jnceath [rde, tien deorasinat vale hut _eventvally re | Fesumptions of te bw of dimivishing 2 Ure [jp labour Ve fhe_only variable Input , copltal yamaing constant - Jun the variable fucy 2, lobovr ic homeqeneous ‘lip the Gtate Es technolo 1 given _and lwput pris are given (2 Sch the law of diminishing _rebwne , kE lug _accueng, iH that a firm (Say, a__ceal_mining fives hata Sef sf wining machinery oS its capital CK) fred [in He Shevlin 7 and (ul) that it oan employ “only [ore _ming workers fe inaease its coal Proven the Ghort-wn Sm forction fos the_-fivm will fovenMe sae ts iene fan b& opfaing iflerentating the pred tunchon, Tus ” : i a MPL at different Jevele of labour employment t —* Mf, = se B- 21°+ Bon +10, We can BB ti by pastas Lali substi Tating Given _nvaarical Values ie I maticall determined. fom tie figuie , tem [propt, the fan Ghuld hit oly on weskers and with fhe average labour _procluctivity (Af). the. vty! auhput will be obtained by mv plymp onthe in 1& _suppesed and ives can bir larger quaviblies of bel’ ard capital: with such tnereave th technol egical relechon chip under — the law of whrns te Scale. Th explained threvg the prodvcticn Gud the 16 d vanpitie ¢ sur aud _cogtal the Sale of pcan increases, | The bébveen w_i¢ quant changing scale_ef “inputs and eutpat 1% Shi is ye. fm Weqvant cone 1s a locus of Poinl-¢ ep ecenfing Variove combinations of we inpuls eg cA ita | = abouy that yield “the Same inpuk begiven st Given the input pris and th HeoviesC@pifal owflay) , a fim oe buy reap 9 Inputs. But all tha” combinahone do net om e cost for 4 given oukpub — only ome of the ipa | combination ¢ esuformt te the least < cosf terion Je achieve tas , we Combine the firms prediction and cst functionc. [le prediction fan Chon it epiesanted by tte jcoavants «Te constuck fhd cock function we asswne thet tho firm dlecidec fe| jheur a PMI Coste CB, op belt K cud L ondliial eS aid. Pjare tks unit cosh of K acAne espechvdly. Hence, Ine__-fivens cost function BR exprested| ac: CHK Kt LAL aol =e fom eqn © the quanthy of Gpital K end labor, a that con _b: purchased out of the total coctic, aw | be obtain aS Shown — Rec Lh and LO © — Ree va Tee ih (eT - Sidds a tine reprinting the alfematve Combinthont Ff | Keand LC that cn be poahased out of the futbl este. 4 yak tre conditions for the least cost combihation sf \\ q | ‘= —) the fisl_oxder con defn Z “1 the cleyae ; cond 2G$ [Ce % i five the InpuR, K and Li, the fwsf order conclifin MME es he ol = | wher AK/AL ic the marginal rale ef cobsththrn K and Ly tnd MA/mpe |i the vaio of lhe marginal peeduchvidy of Lo and k. In eqn (y’ “AK/a ‘= dope of tre _oquahl [F imple that the leg cf cat embinaben Le _given bu _| the point of fangency —behwetn the iSequant anal |eeost Fem A ae f 0 Nigetely be €cj Guppee haf given The rms tot cosF (C) and inpat Pues, Pe and FL the firm's itocost & given by the ind Kalo mated as Q,=200, [lu (oquant Oy |¢=|200 1 J ie Combination of K and L equals om of K avd ON of L ia rcbieatin opbinal as oot Koy, at PAL this pointaha MPL and Tie re marginal pravere F abso and capital respecbuely and and Fe. ar pres f labour and Capital recpechvely. Te lan A Rebirne pb Sale the behaviev r of output th HEPES fa Explains tpnal and Simvltaneove change in inp on When a i expands its Seale, 12 jt inoeawy blk there are phere technical sp mepertonatbly Hen i | iy ar poe a Ikan proper ben ey au WS ke scale) rehnns fe att me may cR® propa nately (consta ip a on pur ym leo Than Properfonglely (dating ehivng fo Seale) +—