- Explain what is meant by a production function.
- Distinguish between returns to scale and returns to a factor.
- Create a graphical analysis of the cost-minimizing input mix and explain how it
is affected by changes in relative prices of inputs. - Define and describe the relationship among total, marginal, and average costs.
- Describe the connection between production and cost functions.
- Distinguish between short- and long-run costs curves.
- Define fixed and variable costs and their role in decision making.
- Explain long-run costs, sources of economies and diseconomies of scale and
scope, and the notion of minimum efficient scale. - Explain why MR = MC at the profit maximizing output.
- Understand how many units of a factor (such as labor) a firm should purchase
at different factor prices.
