Production and the Costs of Production


To identify the categories into which productive activity in the U.S. economy can be classified.

To explain the nature and importance of production methods.

To explore the relationship between production methods and technology.

To differentiate between short-run and long-run production.

To identify the different types of production costs.

To explain the behavior of production costs as the level of output changes in the short run and the long run.

To provide (in an appendix) a more detailed understanding of short-run average costs.


We engage in many productive activities. Students produce papers and projects; families wash cars and clothes and make meals; businesses produce computers, office buildings, and financial advice; and governments provide police and fire protection. Production is a process: It involves taking resources, like labor and materials, and using them to make goods and services.

This chapter is concerned with the microeconomic aspects of production. While all of the areas of the economy engage in production, the vast majority of measured production is done by businesses. So, while many of the concepts in this chapter can be applied to other areas, the focus is on goods and services produced by business firms and their costs of production.

There is an important connection between a firm's production, ...

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