Chapter 5 provides the basic theory of production and costs.
We cover isoquants, isocosts, the short-run versus the long-run, average product,
marginal product, value of marginal product, and the profit-maximizing input
usage. This is followed with isocost-isoquant analysis. These topics are also
covered using three specific functional forms for production functions (linear,
fixed proportions, and Cobb-Douglas). We then take the student to a discussion
and graphical presentation of cost curves. The two approaches of cost analysis
and isocost-isoquant analysis are compared and contrasted to show that there
are two ways of looking at the same question. The theories of economies of scale,
economies of scope, and cost complementarities round out Chapter 5. |