Aniko Oery
University of California, Berkeley
Section 8: The production function, MRTS and
the elasticity of substitution
Econ 100A, MICROECONOMIC ANALYSIS, Spring 2010
So far, we have analyzed the demand side of the market and we could ﬁnally derive the market
demand function. Now, we will try to understand better the supply side of the market. We will
use similar tools as for the analysis of consumer choice, but there are major diﬀerences in the way
we will model the decision making of ﬁrms. First, we need to understand how the ﬁrm can ﬁnd
the optimal input mix that minimizes its costs given a certain quantity of output that it wants
to produce. This is basically what we will do before the ﬁrst midterm. Today, we introduce the
production function, the marginal rate of technical substitution and the elasticity of substitution.
1
The production function
The
production function
is a function that discribes how much output can be produced at
most given a certain input mix. If there is only one input, then it is a univariate function
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 Spring '08
 Woroch
 Economics, Microeconomics, Supply And Demand, University of California, Aniko Oery

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