Core concepts
- 01Production function: Q = f(L, K) — relates output to inputs.
- 02Law of Variable Proportions: as one input increases, marginal product rises then falls.
- 03Returns to scale: increasing / constant / decreasing.
- 04Fixed cost independent of output; variable cost changes with output.
- 05Short-run: at least one input fixed. Long-run: all inputs variable.
Flowchart summary
Total Product (TP) curve /\ / \ / MP \ <- Marginal Product / \ / AP \ +----------- Labour Stage I -> II -> III
Exam-critical pointers
- ⭐MC cuts AC and AVC at their minimum points.
- ⭐When MP > AP, AP rises; when MP < AP, AP falls.
- ⭐Economies of scale (internal: tech, managerial; external: industry-wide infrastructure).
- ⭐U-shaped AC due to law of variable proportions in short run.
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