Production Function, Cost of Production, and Associated Optimality Linkages: A Textbook Supplement

Abstract

One of the most important concepts of production economics, the linkage of costs of production (expressed in terms of output) to the production function, is poorly treated in most intermediate level microtheory and production economics texts. In several texts the linkage is so sketchy it is of limited pedagogical value (e.g., Gould and Ferguson; Heady; Leftwich). The best available treatments are those of Doll, Rhodes, and West, Buse and Bromley, and Goodwin, all of which are in introductory texts. Certainly most students are not ready for abstract, analytical geometries in a first course. However, many upper-division students not only do not understand the input side — output side linkages and the resulting consistency of the input profit-maximizing conditions and the output profit-maximizing conditions, but also become confused as to the meaning of and relationship between marginal revenue and marginal value productivity and between marginal cost and marginal factor cost. Treatments like Goodwin's Figure 9.6 (p. 145) must be reinforced and more fully developed at the intermediate level.