The Production Function
The Neoclassical Production Function
Production is given by Y = f(K,N), where K is capital and N is labor.
Fixed Capital in the Short Run
In the short run, capital is fixed and Y = f(K,N), where K is fixed in the short run.
Could be thought of as shocks to K.
How does this differ from the average cost / marginal cost diagram?
The common theory of the firm treatment focuses on the profit maximizing condition P = MC (price equals marginal cost). The marginal cost is MC = W/MPN or the wage rate divided by the marginal number of units. So, we have P = MC = W/MPN, which implies MPN = W/P. The two approaches are different views of the same result. The critical point is that we are maximizing profits with only one variable factor of production. Picking the optimal level of that factor of production yields the same outcome as picking the optimal level of production.
Production Function, Wikipedia.