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we now come to the second major segment of this reading which is supply analysis here we will cover marginal returns and productivity breakeven and shutdown analysis and economies and diseconomies of scale lets start with marginal returns and productivity the first thing to do here is understand some basic terminology for any firm or any production process there need to be some inputs these inputs are called the factors of production the two most commonly cited factors of production are labor and capital now obviously they can be several other factors of production but in this reading well focus on labor and capital now typically l will stand for the number of units of labor k will stand for the number of units of capital and this is often in terms of the number of machine hours the labor rate is generally a wage rate and the capital cost can be in terms of a rate also so we assume that the capital is rented or leased at a particular rate r and this is the number of units of capital