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"Assuming there are two factors of production, explain clearly with the aid of diagrams, the way in which a firm decides on the optimal combination of these inputs to the production process".
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"Assuming there are two factors of production, explain clearly with the aid of diagrams, the way in which a firm decides on the optimal combination of these inputs to the production process" Factors of production are inputs which represent costs to the firm; it wants to use the cheapest possible combination that can produce a given level of output. The factors of production are land, labour, capital and entrepreneur. A firm has two constraints on its assumed aim of profit maximisation. Market constraints: these are the conditions under which it can buy its inputs and sell its outputs. For an individual firm, which cannot influence the prices at which it sells outputs or buys its inputs, the market constraints are a given set of market prices. The second constraint is a technology constraint. To maximise profit, a firm must be technically efficient (ie it must maximise outputs from a given level of...
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