Now things start to get really fun!
This chapter analyzes production functions and cost functions from both short and long run perspectives. The concepts in the beginning of chapter 7 mirror what was covered in the previous chapter with respect to TU, MU (i.e., slope), optimal purchase rules, the Law of Diminishing Marginal Utility, consumer surplus, etc.. The difference is that *now* we are studying SUPPLY instead of DEMAND.
Consider a simple, short run model:
"Simple" because there are only two inputs (capital and labor) where capital is a fixed input and labor is a variable input. (Be sure you understand exactly what the term "capital" means in economics because it's different than what it means in finance.) The short run is assumed since at least one of your inputs is fixed.
A production function simply means that output = f(inputs), or output = f(labor, capital).
Much more to follow!
