Most firms plans in the long run but operates in the short run. Marginal Product functions, are the change in output per 1-unit change in the variable input. This corresponds to the point where the total product curve reaches a maximum. MP intersects AP at the maximum point on the AP curve. Prices of inputs and the prices of outputs must be used with the production function to determine which of the many possible input combinations is best given the firm s objective.
Production functions vary in terms of how easily inputs can be substituted for one another.
In some cases, inputs must be used in fixed proportions and no substitution is possible. At the other extreme are perfect substitutes, where the inputs can be freely substituted for one another. The slope of the isoquant will be negative. The variety of ways to produce a particular rate of output, implies the substitutability between factors of production. The slope of an isoquant measures the ability of one input to replace another in production.