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Production Theory
 

Production Theory

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Micro Economics

Micro Economics

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    Production Theory Production Theory Presentation Transcript

    • Production Theory
    • Production
      • Creation of U in a certain G or S as a result of which it commands P in the market
    • Production Function
      • P.F is a schedule or mathematical equation that gives max quantity of output that can be produced from specified sets of input while techniques of production are given
      • P = F (A, B, C, D)
      • Production Unit :-
      • A unit where four factors of Production are combined to produce Goods or Services
      • Firm :-
      • An exact body that own or controls Production of 1 or more G & S
      • Industry :-
      • Group of Production units / Firms producing same product
    • Firm Product, Cost & Revenue
      • Firm has to make 3 decisions:-
      • (i) How much to P ?
      • (ii) What will be total cost of Production ?
      • (iii) How much revenue will be obtained ?
      • Decisions carefully taken to obtain max profit
      • PROFIT = TR - TC
      • Total Product (TP) :-
      • Having employed certain no of L, what so ever is produced by firm
      • Average Product (AP) :-
      • Dividing TP by unit of L
      • AP = TP
      • L
    • Marginal Product (MP)
      • Addition to total output that results by employment of additional L
      • MP = Q = d Q
      • L d L
      • MP give slope of TP
    • Firm Cost
      • TC
      • AC
      • MC
    • TC
      • TFC => cost borne ever if firm isn’t operating
      • TVC => bears regarding valuable factor of Production
      • TC = TFC + TVC
      • e.g.
      • for 100 units
      • TC = TFC + TVC
      • = 6000 + 8000
      • = 14000
    • AC
      • Cost per unit [ cost divided by unit ]
      • AC = AFC + AVC
      • e.g.
      • AFC = TFC = 6000 = 60
      • Q 100
      • AVC = TVC = 8000 = 80
      • Q 100
      • AC = 60 + 80 = 140
    • MC
      • Net change TC by having produced additional units of any G
      • MC = d TC
      • d Q
      • e.g. Q TC
      • 100 1200
      • 101 1210
      • d TC = 10 = 10
      • d Q 1
    • Firm Revenue
      • TR :-
      • Obtained by combining sale of all units
      • e.g. 100 units , 5 Rp each
      • TR = 5 x 100 = 500
    • Firm Revenue
      • AR :-
      • Dividing TR by units of output sold
      • TR = 500 = 5
      • Q 100
    • Firm Revenue
      • MR :-
      • Each addition made to TR by sale of extra unit
      • Units 101, P = 5 Rp
      • TR = 5 x 101 = 505