economics Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and interac ...

and

microeconomics Microeconomics is a branch of economics that studies the behavior of individuals and Theory of the firm, firms in making decisions regarding the allocation of scarcity, scarce resources and the interactions among these individuals and firms. M ...

, the economic region of production is an offshoot of the theory of

production function In economics, a production function gives the technological relation between quantities of physical inputs and quantities of output of goods. The production function is one of the key concepts of mainstream economics, mainstream neoclassical econ ...

with two variables. It is a cost-oriented theory which defines the region in which the optimal factor combination will lie.H.L. Ahuja, Advanced Economic Theory, Microeconomic Analysis, S.Chand (2007) 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

isoquant An isoquant (derived from ''quantity'' and the Greek word ', , meaning "equal"), in microeconomics, is a contour line drawn through the set of points at which the same quantity of output is produced while changing the quantities of two or more in ...

s, 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 In economics and in particular neoclassical economics, the marginal product or marginal physical productivity of an input (factor of production) is the change in output resulting from employing one more unit of a particular input (for instance, t ...

(MP_LK) 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 (MP_LK), the isoquant becomes positively sloping. No rational entrepreneur will operate at a point outside the ridge lines (Region of Economic Nonsense).

References

Production economics {{business-stub

Basic theory

See also

References