This video explains how production maximisation works, both from the analytical and graphical points of view. We start analysing production maximisation as the optimisation problem it is, followed by a graphical analysis of the optimum point of production.
Production maximisation must be seen as an optimisation problem regarding the production function, represented by isoquants, and a constraint regarding production costs, represented by an isocost line.
Producers are therefore faced with the following problem: faced with a set of possible production levels and a fixed budget, how to choose the level which maximises their production?
If we know the production function of a certain producer, and we know their budget, we have the two restrictions necessary to maximise their production. This can be done graphically, with the point where isocost and isoquant meet defining an optimum.
It can be also done mathematically, through a Lagrangian, where the first derivatives determine a system of equations that can be resolved by submitting our production function to the restriction presented by the budget.
Learn more by reading the dictionary entry.