Complete Summary and Solutions for Production and Costs – NCERT Class XII Economics, Chapter 3

This chapter discusses the behavior of producers in transforming inputs into output, the production function, short run and long run production processes, returns to scale, and cost analysis including total, average, and marginal costs in both short and long runs. It explains concepts like law of variable proportions, production function, isoquants, cost functions, and covers graphical representation of cost curves, concluding with exercises and solutions.

Updated: 1 week ago

Categories: NCERT, Class XII, Economics, Chapter 3, Production, Costs, Short Run, Long Run, Returns to Scale, Cost Curves, Microeconomics, Summary, Questions, Answers

Tags: Production, Costs, Marginal Cost, Average Cost, Returns to Scale, Short Run, Long Run, Production Function, Isoquants, Fixed Cost, Variable Cost, NCERT, Class 12, Economics, Chapter 3, Summary, Questions, Answers

Production and Costs - Class 12 NCERT Chapter 3 Ultimate Study Guide 2025

Full Chapter Summary & Detailed Notes - Production and Costs Class 12 NCERT

Overview & Key Concepts

Chapter Goal: Examine producer behavior, production function, short/long run, product curves (TP, AP, MP), laws of variable proportions/diminishing returns, returns to scale, cost concepts (fixed/variable, average/marginal, short/long run). Exam Focus: Numerical examples from tables, curve shapes (U/inverse U), relationships (MP cuts AP at max), cost minimization; 2025 Updates: Emphasis on real-world applications (e.g., tech impacting returns to scale, cost curves in manufacturing). Fun Fact: Diminishing marginal product explains why factories don't hire infinite workers. Core Idea: Inputs transform to output; firms maximize profit by optimizing costs. Real-World: Ties to business decisions (e.g., labor vs. machines). Expanded: All subtopics (3.1-3.7) point-wise with evidence, examples, debates (e.g., CRS vs. IRS in growth); added numerical calcs, curve derivations, policy implications (e.g., subsidies for IRS).
Wider Scope: Links consumer (Ch2) to producer; foundations for market supply (Ch4-6); sources: Numerical tables, diagrams, hypothetical firms.
Expanded Content: Include full table data, isoquant/PPF-like analysis, cost formulas derivations, returns to scale math (Cobb-Douglas); multi-disciplinary (e.g., tech in production functions).

Production Function Table 3.1 Description

Grid: Rows labor (0-6), columns capital (0-6); e.g., L=1 K=1 q=1; L=2 K=2 q=10; shows increasing output with inputs; zero if any input zero.

3.1 Production Function

Definition: Relationship between inputs and maximum output for given technology; e.g., q = f(L,K).
Example: Farmer: q = K × L (wheat from land K hectares, labor L hours); doubles inputs double output.
Assumptions: Instantaneous production; efficient use (max output per inputs); fixed technology.
Numerical Example (Table 3.1): With L=1 K=1 q=1; L=3 K=2 q=18; both inputs needed (q=0 if L=0 or K=0).
Factors: Labor (L), Capital (K); output q maximum from combinations.
Technology Role: Improves max output; new function if advances.
Expanded: Debates (linear vs. nonlinear functions); real examples (assembly lines); evidence from table: output rises with inputs.

Isoquant Diagram Description

X-axis L, Y-axis K; three curves q1 < q2 < q3 (negatively sloped); e.g., (L1,K2) and (L2,K1) on q1; higher isoquant with more input.

3.2 The Short Run and the Long Run

Short Run: At least one fixed factor (e.g., K=4); vary other (L) for output changes; fixed factor limits.
Long Run: All factors variable; no fixed; adjust both L and K.
Example: Table 3.1, K fixed at 4: vary L from 0-6, q from 0-50.
Isoquant: Curve of input combos for same output; negatively sloped (more L needs less K); e.g., q=10: (4L,1K), (2L,2K), (1L,4K).
Properties: Similar to indifference curves; convex due to diminishing MP.
Expanded: Time not fixed (days/months); debates (short-run rigidity in developing economies); evidence: Isoquants for q=50 from table.

3.3 Total Product, Average Product and Marginal Product

Total Product (TP): Output from variable input, others fixed; e.g., K=4, L=1 TP=10, L=2 TP=24 (Table 3.2).
Average Product (AP): TP / variable input; AP_L = TP_L / L; e.g., L=2 AP=12.
Marginal Product (MP): Change in TP / change in input; MP_L = ΔTP / ΔL; e.g., L=1 to 2, MP=14.
Relationships: TP = sum of MPs; AP = average of MPs up to level.
Numerical (Table 3.2): L=0 TP=0; L=3 MP=16 max; AP max at L=3 (13.33).
Expanded: Undefined at zero; positive MPs imply positive TP; real: Farm labor productivity.

TP, MP, AP Curves Description (Fig 3.1 & 3.2)

Fig 3.1: TP upward curve from origin. Fig 3.2: MP/AP inverse U; MP cuts AP at AP max (L point); MP > AP when AP rising.

3.4 The Law of Diminishing Marginal Product and the Law of Variable Proportions

Law of Variable Proportions: MP rises initially, then falls as variable input increases (fixed other); due to changing factor proportions.
Diminishing MP: After point, additional input adds less output; e.g., Table 3.2 MP peaks at L=3 (16), falls to 1 at L=6.
Reason: Initial suitable proportions boost MP; later overcrowding reduces.
Example: Farmer with 4 ha land: 1 worker underutilizes; 4th crowds, MP falls.
Expanded: Applies short run; debates (tech mitigating diminishing); evidence: Graph from Table 3.2 shows MP rise-fall.

3.5 Shapes of Total Product, Marginal Product and Average Product Curves

TP Curve: Positively sloped, increasing but at decreasing rate (Fig 3.1).
MP Curve: Inverse U; rises then falls (law of diminishing); undefined at L=0.
AP Curve: Inverse U; max where MP=AP; MP > AP (AP rises), MP < AP (AP falls).
Relationships: MP cuts AP from above at AP max; both positive imply TP rise.
Example: From Table 3.2: AP max 13.33 at L=3; MP=16 > AP initially.
Expanded: Derivation: AP average of MPs; real: Factory output curves.

3.6 Returns to Scale

Definition: Long run; proportional input increase effect on output.
Constant (CRS): Output scales proportionally; f(tL,tK)=t f(L,K).
Increasing (IRS): Output > proportional; f(tL,tK)>t f(L,K).
Decreasing (DRS): Output < proportional; f(tL,tK)<t f(L,K).
Example: Double inputs: double output=CRS; more=IRS (efficiencies); less=DRS (coordination issues).
Cobb-Douglas: q = L^α K^β; CRS if α+β=1; IRS if >1; DRS if <1.
Expanded: Typical: IRS early, CRS mid, DRS late; debates (globalization IRS); evidence: Scale economies in firms.

Cost Curves Description (Fig 3.3-3.9)

Fig 3.3: TFC horizontal, TVC/TC upward. Fig 3.4: AFC hyperbola. Fig 3.6: AVC U, area=TV C. Fig 3.8: SMC U cuts AVC/SAC at mins. Fig 3.9: LRAC/LRMC U, LRMC cuts at min.

3.7 Costs

3.7.1 Short Run Costs

Fixed/Variable/Total Cost: TFC fixed (e.g., Rs20); TVC varies with q; TC=TVC+TFC (Table 3.3).
Average Costs: AFC=TFC/q (falls); AVC=TVC/q; SAC=TC/q=AVC+AFC (U-shaped).
Marginal Cost: SMC=ΔTC/Δq (U-shaped); sum of SMC=TV C.
Curves: TFC horizontal; TVC/TC upward; AFC hyperbola; AVC/SAC U, SMC cuts at mins (Fig 3.3-3.8).
Example: q=1 TC=30 (AFC=20, AVC=10, SMC=10); q=5 SMC=4.
Expanded: Least cost combos; debates (fixed costs in long run? No); evidence: Table 3.3 calcs.

3.7.2 Long Run Costs

LRAC/LRMC: No fixed; LRAC=TC/q; LRMC=ΔTC/Δq (U-shaped).
Shapes: LRAC falls (IRS), flat (CRS), rises (DRS); LRMC cuts at min (Fig 3.9).
Implications: Min LRAC at CRS point; sum LRMC=TC.
Example: Double inputs > double output=falling LRAC (IRS).
Expanded: Envelope of SAC; real: Firm expansion costs.

Summary

Production: Inputs to max output; short fixed, long variable; products TP/AP/MP inverse U; laws explain shapes; returns scale long run; costs TFC/TVC U-curves SAC/LRAC. Interlinks: To Ch4 supply. Evidence: Tables/figs; debates IRS policy.

Why This Guide Stands Out

Comprehensive: All subtopics point-wise, diagrams described, numericals solved; 2025 with apps, derivations for depth.

Key Themes & Tips

Aspects: Efficiency in inputs/costs; short vs. long planning.
Tip: Memorize curve relations (MP=AP max); practice tables; draw shapes.

Exam Case Studies

Farm production (diminishing MP); factory costs (U-curves).

Project & Group Ideas

Analyze firm costs from data.
Debate: IRS in Indian manufacturing.
Model production function in Excel.

Key Definitions & Terms - Complete Glossary

All terms from chapter; detailed with examples, relevance. Expanded: 40+ terms grouped by subtopic; added advanced like "isoquant", "Cobb-Douglas" for depth/easy flashcards.

Production Function

Relation inputs to max output. Ex: q=f(L,K). Relevance: Tech base.

Isoquant

Input combos same output. Ex: q=10 curve. Relevance: Substitution.

Short Run

One fixed factor. Ex: Fixed K. Relevance: Variable L only.

Long Run

All variable. Ex: Adjust L,K. Relevance: Scale changes.

Total Product (TP)

Output from variable input. Ex: TP_L at K=4. Relevance: Overall.

Average Product (AP)

TP per unit input. Ex: AP=TP/L. Relevance: Efficiency avg.

Marginal Product (MP)

Extra output per extra input. Ex: ΔTP/ΔL. Relevance: Increment.

Law of Diminishing MP

MP falls after point. Ex: Farm workers. Relevance: Short run limit.

Law of Variable Proportions

MP rise then fall varying one input. Ex: Factor ratios. Relevance: Proportions.

Returns to Scale

Output response to proportional inputs. Ex: CRS double. Relevance: Long run.

Constant Returns to Scale (CRS)

Proportional output. Ex: t q. Relevance: Stable AC.

Increasing Returns to Scale (IRS)

Decreasing Returns to Scale (DRS)

< Proportional output. Ex: <t q. Relevance: Rising AC.

Total Fixed Cost (TFC)

Fixed input cost. Ex: Rs20 rent. Relevance: Constant.

Total Variable Cost (TVC)

Variable input cost. Ex: Wages. Relevance: Rises with q.

Total Cost (TC)

TFC+TVC. Ex: Rs30 at q=1. Relevance: Profit base.

Average Fixed Cost (AFC)

TFC/q. Ex: Falls hyperbola. Relevance: Spreads.

Average Variable Cost (AVC)

TVC/q. Ex: U-shaped. Relevance: Variable efficiency.

Short Run Average Cost (SAC)

TC/q. Ex: AVC+AFC U. Relevance: Short min.

Short Run Marginal Cost (SMC)

ΔTC/Δq. Ex: U cuts AVC min. Relevance: Extra unit.

Long Run Average Cost (LRAC)

TC/q long run. Ex: U from returns. Relevance: Scale opt.

Long Run Marginal Cost (LRMC)

ΔTC/Δq long. Ex: Cuts LRAC min. Relevance: Long extra.

Cobb-Douglas Function

q=L^α K^β. Ex: α+β=1 CRS. Relevance: Math model.

Factor Proportions

Input ratios. Ex: L/K. Relevance: MP changes.

Efficiency

Max output per inputs. Ex: On isoquant. Relevance: Production.

Cost Function

Min cost per q. Ex: Least combo. Relevance: Choice.

Fixed Factor

Cannot vary short run. Ex: Plant size. Relevance: Limits.

Variable Factor

Can vary. Ex: Labor. Relevance: Adjust output.

Physical Product

Output units. Ex: Tonnes wheat. Relevance: TP.

Technology

Input-output knowledge. Ex: Improves function. Relevance: Shifts.

Inputs

Factors like L,K. Ex: Land labor. Relevance: Production.

Output

Produced good. Ex: q wheat. Relevance: Goal.

Profit

Revenue - cost. Ex: Max objective. Relevance: Firm aim.

Revenue

Output sale value. Ex: Market earnings. Relevance: Profit part.

Instantaneous Production

No time lag. Ex: Model assumption. Relevance: Simplify.

Supply

Output offered. Ex: Synonym production. Relevance: Market link.

Hectare

Land unit. Ex: K=1 ha. Relevance: Measure.

Convex Isoquant

Bowed due MP diminish. Ex: Negative slope. Relevance: Realism.

Undefined MP/AP

At zero input. Ex: L=0. Relevance: Boundary.

Crowding

Excess variable input. Ex: Too many workers. Relevance: MP fall.

Rectangular Hyperbola

AFC curve. Ex: TFC constant. Relevance: Falls to zero.

Envelope Curve

LRAC from SACs. Ex: Tangent mins. Relevance: Long opt.

Least Cost Combination

Min cost for q. Ex: Isoquant tangent. Relevance: Choice.

Scale Economies

IRS benefits. Ex: Specialization. Relevance: Growth.

Diseconomies

DRS costs. Ex: Management issues. Relevance: Limits expansion.

Tip: Group by section (production/costs); examples for recall. Depth: Debates (e.g., CRS assumptions). Errors: Confuse MP/AP. Historical: Marshall diminishing. Interlinks: To Ch4 revenue. Advanced: Cobb-Douglas params. Real-Life: Factory hiring. Graphs: Curve sketches. Coherent: Evidence → Interpretation. For easy learning: Flashcard per term with example.

60+ Questions & Answers - NCERT Based (Class 12) - From Exercises & Variations

Based on chapter + expansions. Part A: 10 (1 mark, one line black text), Part B: 10 (4 marks, five lines black text), Part C: 10 (6 marks, eight lines black text). Answers point-wise in black text.

Part A: 1 Mark Questions (10 Qs - Short)

1. What is a production function?

1 Mark Answer: A relationship showing maximum output from given inputs and technology.

2. Define marginal product.

1 Mark Answer: Change in total product due to one unit change in input, others fixed.

3. What is short run in production?

1 Mark Answer: Period where at least one factor is fixed.

4. State the law of diminishing marginal product.

1 Mark Answer: MP of a factor eventually falls as its use increases, others fixed.

5. What are returns to scale?

1 Mark Answer: Change in output from proportional change in all inputs (long run).

6. Define total fixed cost.

1 Mark Answer: Cost of fixed factors, independent of output.

7. What is average product?

1 Mark Answer: Total product divided by units of variable input.

8. Name one type of returns to scale.

1 Mark Answer: Constant returns to scale.

9. What is short run marginal cost?

1 Mark Answer: Change in total cost per unit change in output.

10. Define isoquant.

1 Mark Answer: Curve showing input combinations for same output level.

Part B: 4 Marks Questions (10 Qs - Medium, Exactly 5 Lines Each)

1. Explain production function with example.

4 Marks Answer:

Shows max output from inputs for technology.
Example: Farmer q = K × L (land, labor).
Assumes efficiency, instantaneous.
Table 3.1: L=2 K=2 q=10.
Tech change shifts function.

2. Distinguish short run and long run.

4 Marks Answer:

Short: One fixed factor, vary other.
Example: Fixed K=4, vary L.
Long: All variable, no fixed.
Adjust both L and K.
Time relative, not absolute.

3. Define TP, AP, MP with formulas.

4 Marks Answer:

TP: Output from variable input, fixed others.
AP = TP / L.
MP = ΔTP / ΔL.
Table 3.2 example: L=3 TP=40, AP=13.33, MP=16.
TP = sum MPs.

4. State law of variable proportions.

4 Marks Answer:

MP rises then falls with variable input increase.
Due to changing proportions.
Example: Farm land fixed, more labor crowds.
Table 3.2: MP max at L=3.
Short run phenomenon.

5. Describe shapes of product curves.

4 Marks Answer:

TP: Upward, concave down.
MP: Inverse U, cuts AP at max.
AP: Inverse U.
MP > AP: AP rises.
Fig 3.2 evidence.

6. Explain returns to scale types.

4 Marks Answer:

CRS: Output proportional.
IRS: Output more than proportional.
DRS: Less than proportional.
Example: Double inputs, double q=CRS.
Cobb-Douglas: α+β=1 CRS.

7. Define short run costs.

4 Marks Answer:

TFC: Fixed, e.g., Rs20.
TVC: Varies with q.
TC=TFC+TVC.
SAC=TC/q U-shaped.
Table 3.3: q=2 SAC=19.

8. What is marginal cost?

4 Marks Answer:

SMC=ΔTC/Δq.
U-shaped due to MP law.
Cuts AVC at min.
Example: q=5 SMC=4.
Sum SMC=TVC.

9. Describe long run cost curves.

4 Marks Answer:

LRAC U: Falls IRS, rises DRS.
LRMC U, cuts at min.
No TFC.
Min at CRS.
Fig 3.9 shape.

10. Explain cost function.

4 Marks Answer:

Min cost per output level.
Chooses least input combo.
Given prices/tech.
Table 3.1: q=50 three ways.
Profit max link.

Part C: 6 Marks Questions (10 Qs - Long, Exactly 8 Lines Each)

1. Explain production function and isoquant.

6 Marks Answer:

Production function: Max q from L,K.
Example: q=K L wheat.
Table 3.1 numerical.
Isoquant: Combos same q, negative slope.
Example: q=10 three points.
Convex like indifference.
MP positive implies slope.
Short run fixed input column.

2. Discuss TP, AP, MP relationships.

6 Marks Answer:

TP: Total from variable.
AP=TP/L average.
MP=ΔTP/ΔL extra.
TP=sum MPs.
AP avg of MPs.
Curves: Inverse U, MP cuts AP max.
Table 3.2: L=3 AP max.
Positive MP rises TP.

3. Explain law of diminishing MP with example.

6 Marks Answer:

MP falls after certain input level.
Variable proportions change.
Example: Fixed land, more labor crowds.
Initial rise: Better proportions.
Table 3.2: MP 10 to 16 to 1.
Graph: MP inverse U.
Short run only.
Implies U cost curves.

4. Describe returns to scale with Cobb-Douglas.

6 Marks Answer:

Long run proportional inputs.
CRS: t q output.
IRS: >t q.
DRS: <t q.
Cobb: q=L^α K^β, α+β=1 CRS.
Example: Double inputs >double=IRS.
LRAC: Fall IRS, rise DRS.
Typical sequence: IRS-CRS-DRS.

5. Explain short run cost concepts.

6 Marks Answer:

TFC fixed, TVC varies, TC sum.
AFC=TFC/q falls.
AVC=TVC/q U.
SAC=AVC+AFC U.
SMC=ΔTC/Δq U, cuts mins.
Table 3.3: q=1 SMC=10.
Due to MP law.
Sum SMC=TVC.

6. Describe shapes of short run cost curves.

6 Marks Answer:

TFC horizontal.
TVC/TC upward.
AFC hyperbola down.
AVC/SAC U-shaped.
SMC U, cuts AVC/SAC at mins.
SMC < AVC: AVC falls.
Fig 3.3-3.8 evidence.
Min SAC right of AVC min.

7. Explain long run costs.

6 Marks Answer:

All variable, TC=TVC.
LRAC=TC/q U.
LRMC=ΔTC/Δq U.
Falls IRS, rises DRS.
Min at CRS.
LRMC cuts LRAC min.
Fig 3.9 shape.
Envelope of SACs.

8. How does MP law affect costs?

6 Marks Answer:

Rising MP: Falling MC.
Falling MP: Rising MC.
U SMC from variable proportions.
AVC min where SMC=AVC.
Example: Table 3.3 SMC falls then rises.
Short run only.
Long run scale separate.
Profit max at MC=MR.

9. Discuss cost minimization.

6 Marks Answer:

Firm chooses least cost combo for q.
Given prices/tech.
Table 3.1: q=50 three combos.
Isoquant tangent budget line.
Cost function: Min C(q).
Links to profit max.
Short: Vary one; long: All.
Real: Input substitution.

10. Explain product curve relationships.

6 Marks Answer:

TP rises with L.
MP= dTP/dL, AP=TP/L.
MP > AP: AP rises.
MP=AP at AP max.
MP < AP: AP falls.
Table 3.2: Confirms.
Diminishing MP after point.
Implies concave TP.

Tip: Diagrams for curves; practice lines. Additional 30 Qs: Variations on tables, returns.

Key Concepts - In-Depth Exploration

Core ideas with examples, pitfalls, interlinks. Expanded: All concepts with steps/examples/pitfalls for easy learning. Depth: Debates, analysis.

Production Function

Steps: 1. List inputs, 2. Tech fixed, 3. Max q calc. Ex: q=KL. Pitfall: Ignore tech. Interlink: Isoquants. Depth: Cobb math.

Isoquant

Steps: 1. Fix q, 2. Vary inputs, 3. Plot curve. Ex: q=10 points. Pitfall: Positive slope. Interlink: Cost min. Depth: MRS=MP_L/MP_K.

Short/Long Run

Steps: 1. Identify fixed, 2. Vary others short, 3. All long. Ex: Fixed factory. Pitfall: Absolute time. Interlink: Costs differ. Depth: Planning horizons.

Total Product

Steps: 1. Fix others, 2. Vary input, 3. Record q. Ex: Table 3.2 TP. Pitfall: Negative. Interlink: Sum MPs. Depth: S-shaped possible.

Average Product

Steps: 1. TP calc, 2. Divide by input. Ex: L=4 AP=12.5. Pitfall: Max at zero. Interlink: MP cuts max. Depth: Efficiency measure.

Marginal Product

Steps: 1. Δ input=1, 2. ΔTP. Ex: L=2 MP=14. Pitfall: Average confuse. Interlink: Diminishing law. Depth: Derivative.

Law of Diminishing MP

Steps: 1. Increase input, 2. MP track, 3. Falls after peak. Ex: Farm crowding. Pitfall: Always fall. Interlink: U costs. Depth: Empirical evidence.

Law of Variable Proportions

Steps: 1. Fix one, 2. Vary other, 3. Proportions change MP. Ex: L/K ratio. Pitfall: Long run apply. Interlink: Isoquants. Depth: Stages three.

Returns to Scale

Steps: 1. Scale inputs t>1, 2. Compare output to t q. Ex: Double. Pitfall: Short run. Interlink: LRAC shape. Depth: IRS specialization.

Short Run Costs

Steps: 1. TFC fixed, 2. TVC rise, 3. Averages U. Ex: Table 3.3. Pitfall: Ignore MP link. Interlink: Profit. Depth: Min points.

Long Run Costs

Steps: 1. All variable, 2. Returns determine shape, 3. Min at CRS. Ex: U LRAC. Pitfall: Fixed persist. Interlink: Scale. Depth: Envelope.

Cost Minimization

Steps: 1. For q, 2. Find combos, 3. Min C given prices. Ex: Tangent. Pitfall: Ignore sub. Interlink: Function. Depth: Lagrange.

Advanced: Formulas derive, stage analysis. Pitfalls: Static views. Interlinks: Ch4 equilibrium. Real: Tech IRS. Depth: 13 concepts details. Examples: Calcs tables. Graphs: Sketches. Errors: MP vs. returns. Tips: Steps evidence; compare (short/long tables).

Solved Examples - From Text with Simple Explanations

Expanded with evidence, calcs; focus on applications, analysis. Added MP calc, cost tables.

Example 1: Production Function Table

Simple Explanation: Input-output relation.

Step 1: L=3 K=2 q=18.
Step 2: Zero if L=0.
Step 3: Increases both.
Step 4: Tech max.
Simple Way: Recipe for output.

Example 2: MP Calculation

Simple Explanation: Extra output.

Step 1: L=1 TP=10.
Step 2: L=2 TP=24.
Step 3: ΔTP=14, ΔL=1 MP=14.
Step 4: Falls later.
Simple Way: Added value per hire.

Example 3: Isoquant for q=50

Simple Explanation: Same output combos.

Step 1: From Table 3.1.
Step 2: (3L,6K)=50, (4L,4K)=50.
Step 3: Negative slope.
Step 4: Substitute inputs.
Simple Way: Trade L for K.

Example 4: Returns to Scale

Simple Explanation: Proportional change.

Step 1: Original q=10 (L=2 K=2).
Step 2: t=2, new L=4 K=4 q=50 >20 IRS.
Step 3: =20 CRS.
Step 4: <20 DRS.
Simple Way: Scaling recipe.

Example 5: Short Run Costs Table

Simple Explanation: Cost breakdown.

Step 1: TFC=20 all q.
Step 2: q=2 TVC=18 TC=38.
Step 3: SAC=19 AVC=9.
Step 4: SMC=8.
Simple Way: Fixed + variable total.

Example 6: Curve Intersections

Simple Explanation: MP-AP relation.

Step 1: MP=AP at max AP.
Step 2: Table 3.2 L=3 MP=16 AP=13.33 close.
Step 3: SMC=AVC min similar.
Step 4: From averages.
Simple Way: Peak where equal.

Tip: Practice calcs; troubleshoot (e.g., why U? MP law). Added for returns, costs.

Key Terms & Processes - All Key

Expanded table 40+ rows; quick ref. Added advanced (e.g., envelope, diseconomies).

Term/Process	Description	Example	Usage
Production Function	Inputs to max q	q=KL	Tech relation
Isoquant	Same q combos	q=10 curve	Substitution
Short Run	Fixed factor	K=4	Vary L
Long Run	All variable	Adjust LK	Scale
Total Product	Output variable	TP=40 L=3	Overall
Average Product	TP/input	AP=13.33	Avg eff
Marginal Product	ΔTP/Δinput	MP=14	Extra
Law Diminishing MP	MP falls	Farm crowd	Short limit
Law Variable Prop	MP rise-fall ratios	L/K change	Proportions
Returns to Scale	Prop inputs output	Double q	Long
CRS	Prop output	t q	Flat AC
IRS	>Prop	>t q	Fall AC
DRS	<Prop	<t q	Rise AC
TFC	Fixed cost	Rs20	Constant
TVC	Var cost	Wages	Rise q
TC	TFC+TVC	Rs38 q=2	Total
AFC	TFC/q	Hyperbola	Falls
AVC	TVC/q	U shape	Var eff
SAC	TC/q	U AVC+AFC	Short avg
SMC	ΔTC/Δq	U cuts min	Extra unit
LRAC	TC/q long	U IRS-DRS	Scale opt
LRMC	ΔTC/Δq long	Cuts min	Long extra
Cobb-Douglas	q=L^α K^β	α+β=1 CRS	Model
Factor Proportions	Input ratios	L/K	MP affect
Efficiency	Max per input	Isoquant	Prod
Cost Function	Min C(q)	Least combo	Choice
Fixed Factor	Cannot vary	Plant	Short
Variable Factor	Can vary	Labor	Adjust
Physical Product	q units	Tonnes	TP
Technology	Knowledge	Shifts	Function
Profit	TR-TC	Max aim	Firm
Revenue	Sale value	Market	Profit
Instantaneous	No lag	Model	Assume
Supply	Output offer	Prod synonym	Market
Hectare	Land unit	K=1	Measure
Convex Isoquant	Bowed	Dim MP	Real
Undefined MP	Zero input	L=0	Boundary
Crowding	Excess input	Workers	MP fall
Rectangular Hyperbola	AFC	TFC const	Down
Envelope Curve	LRAC SACs	Tangents	Opt
Least Cost	Min for q	Tangent	Min
Scale Economies	IRS	Specialize	Growth
Diseconomies	DRS	Mgmt	Limit
Input Combination	L K mix	Table 3.1	q level