Authors libby rittenberg 412
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In this chapter we see why firms make the production choices they do and
how their costs affect their choices. We will apply the marginal decision
rule to the production process and see how this rule ensures that
production is carried out at the lowest cost possible. We examine the
nature of production and costs in order to gain a better understanding of
supply. We thus shift our focus tofirms, organizations that produce goods
and services. In producing goods and services, firms combine the factors of
production—labor, capital, and natural resources—to produce various
products.
Economists assume that firms engage in production in order to earn a
profit and that they seek to make this profit as large as possible. That is,
economists assume that firms apply the marginal decision rule as they
seek to maximize their profits. Whether we consider the operator of a
shoe-shine stand at an airport or the firm that produces airplanes, we will
find there are basic relationships between the use of factors of production
and output levels, and between output levels and costs, that apply to all
production. The production choices of firms and their associated costs are
at the foundation of supply.
8.1 Production Choices and Costs: The
Short Run
LEARNING OBJECTIVES
1. Understand the terms associated with the short-run production
function—total product, average product, and marginal product—and
explain and illustrate how they are related to each other.
Attributed to Libby Rittenberg and Timothy Tregarthen
Saylor URL: />
Saylor.org
412
