To introduce the concept of production and explain its relevance to managerial decision-making.
To explain the meaning and significance of different time frames.
To describe the different factors of production and explain the concept of the production function.
To explain the different concepts of efficiency.
To explain the concept of an input-output table and its applications to different time frames and to isoquants.
To explain isoquant analysis and its applications in both short-run and long-run situations.
To explain how an optimal combination of inputs can be determined in both short-run and long-run situations.
To explain the parallels between production theory and consumer theory.
To describe different forms of production function and their implications.
To explain the concept of returns to scale and its relationship to production functions and empirical studies.
To describe and explain relationships between total, average and marginal product, and the different stages of production.
To enable students to apply the relevant concepts to solving managerial problems.
In the previous chapters we have seen how firms are usually profit-oriented in terms of their objectives and we have focused on the revenue side of the profit equation by examining demand. We now need to examine the other side of the profit equation by considering costs. However, just as we had to examine consumer theory in order to understand demand, we must now examine production theory before we can understand costs and cost relationships.