1. Explain what is meant by a production function.
2. Distinguish between returns to scale and returns to a factor.
3. Create a graphical analysis of the cost-minimizing input mix and explain how it
is affected by changes in relative prices of inputs.
4. Define and describe the relationship among total, marginal, and average costs.
5. Describe the connection between production and cost functions.
6. Distinguish between short- and long-run costs curves.
7. Define fixed and variable costs and their role in decision making.
8. Explain long-run costs, sources of economies and diseconomies of scale and
scope, and the notion of minimum efficient scale.
9. Explain why MR = MC at the profit maximizing output.
10. Understand how many units of a factor (such as labor) a firm should purchase
at different factor prices.
In economics, the term production function is immensely used to imply the correlation that exist between the maximum amount of output that can be obtained from a given amount of input. In other words, the production function describes the existing boundary between the obtained output from each feasible combination of output. Organizations and firms employ this concept to determine how much output they should produce given the price of a good and what kind of input they should use to produce.