In this first LP on production, we will examine the decisions that lead to optimal levels of production. This is crucial, as it mirrors the same decisions that we saw consumers making: assigning our limited (and expensive!) resources in the best way possible in order to maintain optimal levels of production. This will ultimately lead us to the same dual problem: whether to minimise costs assuming an optimal, fixed level of production, or whether to hedge our bets and maximise production whilst fixing a budget for costs.
In order to do this, we will begin by looking at the basics, production and costs, with an entry on:
- Isoquants, or graphical representations of our production possibilities, and relate this to the
- MRTS, which shows the trade off between our inputs, and put all this together in our summary of the
- economic region of production, which represents our rational possibilities. We will then go on to examine
- production functions and their characteristics and finish this first section with
- isocosts, which closely relate to the concept of isoquants.
In the second half of this LP, we will go on to cover the problem of production duality, beginning with an entry on:
- Production maximisation, and then looking at the flip side of the coin with
- cost minimisation, before putting it together in
- production duality.