Misplaced Pages

Economic region of production

Article snapshot taken from Wikipedia with creative commons attribution-sharealike license. Give it a read and then ask your questions in the chat. We can research this topic together.
Economic theory stemming from the theory of production
This article has multiple issues. Please help improve it or discuss these issues on the talk page. (Learn how and when to remove these messages)
This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed.
Find sources: "Economic region of production" – news · newspapers · books · scholar · JSTOR (September 2014) (Learn how and when to remove this message)
This article may be too technical for most readers to understand. Please help improve it to make it understandable to non-experts, without removing the technical details. (March 2011) (Learn how and when to remove this message)
(Learn how and when to remove this message)

In economics and microeconomics, the economic region of production is an offshoot of the theory of production function with two variables. It is a cost-oriented theory which defines the region in which the optimal factor combination will lie. It serves as a map of the region of optimal production. Economic region of production consist of negatively sloped portion of all isoquants.

Basic theory

Production lines Q1 and Q2 are the isoquants, depicting the technically efficient factor combinations at different levels of production. The ridge lines A and B demarcate the technically efficient region of production. Above the line OA and below the line OB slope of the isoquants is positive which means that increases in both capital and labour are required to produce a given fixed quantity of output. The ridge lines are the combination of points where marginal product (MPLK) of one of the factors is zero.

The theory entails that there is a limit to how much one factor can be substituted for another. When production reaches a point where substitution between the factors becomes impossible (MPLK), the isoquant becomes positively sloping. No rational entrepreneur will operate at a point outside the ridge lines (Region of Economic Nonsense).

See also

References

  1. ^ H.L. Ahuja, Advanced Economic Theory, Microeconomic Analysis, S.Chand (2007) ISBN 81-219-0260-6
Portals:


Stub icon

This business-related article is a stub. You can help Misplaced Pages by expanding it.

Categories: