As we've already learned, consumers gain utility from buying goods—but every good has to come from somewhere! Goods are produced by firms, and analyzing the decisions of firms is also central to our understanding of the economy. In this lecture, we will learn how companies make important operation decisions.
When considering firm production decisions, we must consider the two forms of firm input – labor and capital. This image is a work of the US Federal Government and in the public domain. Source: Library of Congress.
Keywords: Production theory; firm production functions; variable inputs; fixed inputs; short run production; long run production; marginal rate of technical substitution; returns to scale.
Read the recitation notes, which cover new content that adds to and supplements the material covered in lecture.
Before watching the lecture video, read the course textbook for an introduction to the material covered in this session:
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- Lecture 8: Introduction to Producer Theory (00:37:21)
Lecture 8: Introduction to Producer Theory
- Transcript (PDF)
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- Firm Production Functions (00:11:18)
Firm Production Functions
- Short Run Production and Diminishing Marginal Product (00:07:04)
Short Run Production and Diminishing Marginal Product
- Long Run Production and the Marginal Rate of Technical Substitution (00:11:03)
Long Run Production and the Marginal Rate of Technical Substitution
- Returns to Scale (00:07:52)
Returns to Scale
This concept quiz covers key vocabulary terms and also tests your intuitive understanding of the material covered in this session. Complete this quiz before moving on to the next session to make sure you understand the concepts required to solve the mathematical and graphical problems that are the basis of this course.