Answer:

Neo-Classical Theory of Production

Neo-Classical Theory of Production is a theory of economics that states that firms will maximize their profits by producing the amount of output that equates marginal revenue with marginal cost. This theory assumes that firms will make rational decisions in order to maximize profits, and that they will produce the optimal amount of output at a given price. It also assumes that firms will take into account the cost of inputs when making their decisions.

Factors of Production

The Neo-Classical Theory of Production states that firms will use their resources in the most efficient way possible in order to maximize profits. The theory assumes that firms will take into account the cost of inputs when making their decisions, as well as the cost of production. The inputs used in production are referred to as the factors of production, and can include land, labor, capital, and entrepreneurship.

Marginal Revenue and Marginal Cost

The Neo-Classical Theory of Production states that firms will produce the optimal amount of output at a given price by equating marginal revenue with marginal cost. Marginal revenue is the additional revenue that a firm gains from producing one additional unit of output, while marginal cost is the additional cost of producing one additional unit of output. By equating marginal revenue with marginal cost, firms will be able to maximize their profits.

Competitive Markets

The Neo-Classical Theory of Production assumes that firms will be operating in a competitive market. In a competitive market, firms are unable to influence the price of their products, as they are competing with other firms for the same customers. This means that firms must adjust their output in order to maximize their profits, as they are unable to influence the price of their products.

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