Economics-For Managers

Firms try to maximize production with the resources available at a particular period of time. They try to gain maximum benefits from the combination of their fixed and variable factors of production. The relationship that explains the combination of the variables and the output can be referred to as the production function.

There are three concepts of product - total, average and marginal product. Total product refers to the total amount of output produced using a given quantity of the factor, assuming other factors to be constant.

Average product is defined as the total product per unit of factor employed in the production process. The marginal product of an input is the extra output added by one extra unit of that input, while other inputs are held constant. The short run is a period in which variable factors such as labor and material can be changed to adjust the production but one cannot change fixed factors such as capital.