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# Production Function

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• 1. P RODUCTION F UNCTION T YPE O F P RODUCTION F UNCTION 1. L INEAR O R H OMOGENEOUS 2. N ON L INEAR O R H OMOGENEOUS 3. S HORT R UN P RODUCTION F UNCTION 4. L ONG R UN P RODUCTION F UNCTION
• 2. T WO A SPECTS OF P RODUCTION:
• 1. COST ANALYSIS
• 2. REVENUE ANALYSIS
• 3. COST ANALTSIS
• SHORT RUN COST
• FIXED FACTORS
• VARIABLE FACTORS
• 2. LONG RUN COST
• 4. TYPE OF COST IN SHORT PERIOD
• FIXED COST
• FIXED COST CAN NEVER ZERO
• TFC REMAIN FIXED
• AFC WILL GO ON DIMINISHING
AFC=TFC/OUTPUT
• 5. GRAPHICAL REPRESENTATION 100 80 70 60 40 20 1 2 3 4 5 0 TFC AFC UNIT TFC AFC _ 100 50 33 25 20 100 100 100 100 100 100 0 1 2 3 4 5 AFC TFC UNIT
• 6. VARIABLE COST
• VARIABLE COST CAN BE ZERO
• TVC INCREASES OR DECREASES
• AVC DIMINISHING UPTO A POINT THEN INCREASING
AVC=TVC/OUTPUT
• 7. GRAPHICAL REPRESENTATION 10 20 30 40 50 60 0 1 2 3 4 5 6 7 TVC AVC AVC 10 9 8 7 6 7 8 TVC10 10 15 24 25 30 42 56 UNIT 1 2 3 4 5 6 7
• 8. WHY AC IS U-SHAPED? AC=AFC+AVC UNIT AC At first AFC or AVC falls, as a result AC also falls. After a point AFC start falling at low rate,whereas AVC start rising at a greater rate. As a result AC start rising,it become U-Shaped.
• 9. R EVENUE A NALYSIS REVENUE ANALYSIS TOTAL REVENUE AVERAGE REVENUE MARGINAL REVENUE