Ch 2 · Theory of Production and Cost

5 concept points · 5 formulas · 4 exam-critical points.

📘 Core concepts

• 1Production function: Q = f(L, K) — relates output to inputs.
• 2Law of Variable Proportions: as one input increases, marginal product rises then falls.
• 3Returns to scale: increasing / constant / decreasing.
• 4Fixed cost independent of output; variable cost changes with output.
• 5Short-run: at least one input fixed. Long-run: all inputs variable.