Page 91 - DECO405_MANAGERIAL_ECONOMICS

Managerial Economics Ashwani Panesar, Lovely Professional University

Notes Unit 6: Production Theory

CONTENTS
Objectives
Introduction
6.1 Meaning of Production

6.2 Production Function with One Variable Input
6.3 Production Function with two Variable Inputs
6.4 Producer’s Equilibrium

6.4.1 Isoquants
6.4.2 Concept of Producer’s Equilibrium
6.5 Expansion Path
6.6 Total, Marginal and Average Revenue
6.6.1 Total Revenue (TR)

6.6.2 Average Revenue (AR)
6.6.3 Marginal Revenue (MR)
6.7 Summary

6.8 Keywords
6.9 Self Assessment
6.10 Review Questions
6.11 Further Readings

Objectives

After studying this unit, you will be able to:
Describe production function with one and two variables
State the concept of producers equilibrium and expansion path
Explain the behaviour of total, average and marginal revenue curves

Introduction

The production analysis of the firm brings into focus the process of production and related costs
of production. We must take inputs into consideration applied for production and resulting into
output. There are different methods to produce a commodity. The firm has to identify the
technically efficient production processes for avoiding any wastage of resources. These technically
efficient production processes provide a choice for choosing the least-cost process.
Major portion of goods and services consumed in a modern economy are produced by firms. A
firm is an organisation that combines and organises resources for the purpose of producing

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