Production

From Hobson's Choice

In economics, the process of combining factors of production (land, labor, capital) for the purpose of producing commodities. Production is therefore understood to be an optimization problem, since the use of factors inevitably involves their depletion.

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Output Curve

This is closely analogous to the indifference curve, and so one uses a similar graphic with different labels (the original graphic is here).

Here, the tradeoff is between labor (L) and capital (K), or any other combination of inputs. While I've shown only two inputs in the diagram, it's possible to set up optimization equations involving as many inputs as you like... such as different capital structures (bonds versus bank loans versus equity), energy inputs, and so forth. One element that is new to the production curve here is the idea of technology: the possibility that output (X) can increase without an increase in L or K. In fact, economists simply treat technology as another input (A), and have long debated the role it plays (See Solow-Swan Classical Growth Theory).

The concept of the indifference curve in economics dates back to the 1870's; some of the first economists to use it were the "Marginalists," such as William Stanley Jevons (1871) and Leon Walras (1874).

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