Production Function

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Production Function

  1. 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. 2. T WO A SPECTS OF P RODUCTION: <ul><li>1. COST ANALYSIS </li></ul><ul><li>2. REVENUE ANALYSIS </li></ul>
  3. 3. COST ANALTSIS <ul><li>SHORT RUN COST </li></ul><ul><li>FIXED FACTORS </li></ul><ul><li>VARIABLE FACTORS </li></ul><ul><li>2. LONG RUN COST </li></ul>
  4. 4. TYPE OF COST IN SHORT PERIOD <ul><li>FIXED COST </li></ul><ul><li>FIXED COST CAN NEVER ZERO </li></ul><ul><li>TFC REMAIN FIXED </li></ul><ul><li>AFC WILL GO ON DIMINISHING </li></ul>AFC=TFC/OUTPUT
  5. 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. 6. VARIABLE COST <ul><li>VARIABLE COST CAN BE ZERO </li></ul><ul><li>TVC INCREASES OR DECREASES </li></ul><ul><li>AVC DIMINISHING UPTO A POINT THEN INCREASING </li></ul>AVC=TVC/OUTPUT
  7. 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. 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. 9. R EVENUE A NALYSIS REVENUE ANALYSIS TOTAL REVENUE AVERAGE REVENUE MARGINAL REVENUE

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