EC270 Chapter Notes - Chapter 4: Substitute Good, Kurdistan Workers' Party, Isoquant
Document Summary
Once managers determine the demand for the firm"s product or service, they must choose the optimal method to produce. A production process explains how scarce resources are used to produce a good or service. The production function specifies the relationship between inputs and outputs. In business, production involves all activities associated with providing goods and services, such as employment practices, acquisition of capital resources, and product distribution. Managers cannot understand their firm"s cost structure unless they understand the production process. The production function is a table, a graph, or an equation showing the maximum product output achieved rom any specified set of inputs. The function summarizes the characteristic of existing technology at a given time; it shows the technological constants manager face. Production is dynamic: methods, designs, and factor costs change. If a process uses two inputs, x1 is he first input and x2 is the second: the production function is:
