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Production 1

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Transcript

  • 1.
    • PRODUCTION CONCEPT
      • PRODUCTION DIRECTLY OR INDIRECTLY SATISFIES THE NEEDS AND WANTS OF PEOPLE.
      • IT IS CONCERNED WITH THE SUPPLY SIDE OF THE MARKET.
      • IT IS THE TRANSFORMATION OF INPUTS INTO OUTPUT OF A COMMODITY OR SEVERAL COMMODITIES IN A SPECIFIC PERIOD OF TIME AT THE GIVEN STATE OF TECHNOLOGY.
      • IT IMPLIES CREATIONS OR ADDITION OF FORM, PLACE & TIME UTILITIES BY THE PRODUCTION AND STORAGE, DISTRIBUTION OF DIFFERENT USUABLE COMMODITIES AND SERVICES.
  • 2.
    • FACTORS OF PRODUCTION :
    • (i) LAND
    • (ii) LABOUR
    • (iii) CAPITAL
    • (iv) ENTERPRENEURS
    • PRODUCTION FUNCTION
    • Q = f (K, L, l, O)
    • Q = OUTPUT, K = CAPITAL
    • L = LABOUR, l = LAND
    • O = ORGANISATION
  • 3.
    • PRODUCTION FUNCTION
      • DIFFERENT COMBIMATIN OF INPUTS & OUTPUTS.
      • IT SHOWS FOR A GIVEN TECHNOLOGICAL KNOWLEDGE & MANAGERIAL ABILITY.
      • MAXIMUM AMOUNT OF GOODS THAT CAN BE OBTAINED FROM DIFFERENT CONDITION OF PRODUCTIVE FACTORS.
      • MINIMUM QUANTITIES OF VARIOUS INPUTS REQUIRED TO YIELD A GIVEN QUANTITY OF OUTPUT.
  • 4.
    • THE CHOICE OF PARTICULAR PRODUCTION METHOD DEPENDS ON
    • * RATIONALITY
    • * TECHNICALLY COEFFICIENT.
    • Q = F (K,L)
    • OUTPUT
    • LABOUR & CAPITAL
    • PRODUCTION FUNCTION
  • 5.
    • TYPES OF PRODUCTION FUNCTION :
    • (I) FIXED PROPORTION & VARIABLE PROPORTION.
    • (II) LINEAR & NON LINEAR PRODUCTIN FUNCTION.
    • Q = αK + βL α = CONTRIBUTION OF CAPITAL
    • TO OUTPUT.
    • β = CONTRIBUTION OF LABOUR
    • TO OUTPUT.
    • LINEAR HOMOGENOUS PRODUCTION FUNCTION
    • Q = f (K, L)
    • nQ = f (nK, nL)
  • 6.
    • (III) COBB - DOUGLAS PRODUCTION FUNCTION.
    • Q = AL  K  (O < α) (β < 1)
    • Q = OUTPUT L >O, K >O
    • A = EFFICIENCY PARAMETER.
    • THE MORE EFFICIENT FIRM WILL HAVE A LARGER VALUE OF A.
    • α, β ARE PARTIAL ELASTICIES OF OUTPUT WITH RESPECT TO LABOUR AND CAPITAL.
  • 7.
      • ISO QUANTS / ISO PRODUCT CURVE / EQUAL PRODUCT CURVE
      • IT REPRESENTS ALL POSSIBLE INPUT COMBINATION OF TWO FACTORS WHICH ARE CAPABLE OF PRODUCING SAME LEVEL OF OUTPUT.
      • PRODUCER WOULD BE INDIFFERENT BETWEEN SUCH COMBINATIONS, SO IT IS OFTEN REFERRED TO AS PRODUCER’S INDIFFERENCE CURVE OR PRODUCTION INDIFFERENCE CURVE.
  • 8.
      • AN ISO QUANTS REPRESENTS DIFFERENT TECHNIQUES OF PRODUCTION.
        • CAPITAL INTENSIVE.
        • LABOUR INTENSIVE.
      • EACH HIGHER ISO QUANTS REPRESENTS HIGHER LEVEL OF OUTPUT.
    • IQ IQ 1 IQ 1
    • CAPITAL
    • 300
    • 200
    • 100
    • LABOUR
  • 9.
      • MARGINAL RATE OF TECHNICAL SUBSTITUTION (MRTS)
      • MRTS INDICATES THE RATE AT WHICH FACTORS CAN BE SUBSTITUTED AT THE MARGIN IN SUCH A MANNER THAT THE TOTAL OUTPUT REMAINS SAME.
      • MARGINAL RATE OF TECHNICAL SUBSTITUTION OF LABOUR FOR CAPITAL IS THE QUANTITY OF CAPITAL CAN BE GIVEN UP IN EXCHANGE FOR AN ADDITIONAL UNIT OF LABOUR.
      • MRTS = ΔK = SLOPE
      • ΔL
  • 10.
    • TOTAL OUTPUT
      • LOSS OF OUTPUT = GAIN IN OUTPUT.
      • i.e. REDUCTION IN K* = INCREMENT IN L*
      • MARGINAL PHYSICAL MARGINAL PHYSICAL
      • PRODUCT OF K PRODUCT OF L
      • ΔK X MPK = ΔL X MPL
      • ΔK = MPL
      • ΔL MPK
      • MPL
      • MRTS L,K = MPK
      • MRTS OF FACTOR L FOR FACTOR K IS THE RATIO OF MARGINAL PRODUCTIVES OF TWO FACTORS.
  • 11.
    • SLOPE OF ISO QUANT
    • Q = f (K, L) = k. Q = OUTPUT
    • k = CONSTANT
    • SLOPE OF A CURVE = SLOPE OF TANGENT
    • AT ANY POINT AT THAT POINT
    • TAKING TOTAL DERIVATIVE.
    •  Q  Q
    • dQ =  K . dK +  L . dL
    • = MP K . dK + MP L . dL
    • SINCE THE TOTAL OUTPUT REMAINS THE SAME ALONG AN ISO QUANT
    • dQ = MP K . dK + MP L . Dl = O
  • 12.
    • dK MP L
    • dL MP K
    • MP L
    • MRTS L, K = MP K
    • SLOPE AND HENCE THE MRTS IS THE MEASURE OF THE RELATIVE MARGINAL PRODUCT OF THE FACTORS.
  • 13.
    • PROTERTIES OF ISO QUANTS
    • * ISO QUANTS SLOPE DOWNWARD FROM
    • LEFT TO RIGHT. –When quantity of one factor Increases, the quantity of other factor reduces, so that total product remains const.
    • * ISO QUANTS NEVER CUTS, TOUCH OR
    • INTERSECT EACH OTHER.
    • * ISO QUANTS ARE CONVEX TO THE ORIGIN-because of diminishing rate of technical substitution.