Here you will learn about one of the most important economic agents: the producer. The producer (firm) is responsible for creating the production function (output) and is subject to various cost measures as well as the results of diminishing returns. You will explore these ideas more fully as you delve into the relationship between quantity of input and quantity of output. We will discuss how and why a firm’s costs may differ in the short run versus the long run.

Objectives

Upon successful completion of this unit, you will be able to:

• analyze the behavior of the producer;
• compare the costs of production in the short run to costs of production in the long run;
• identify the production function in the short run as well as the long run; and
• compute the relationship between different cost functions.