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# Production analysis 3

## on Jan 10, 2012

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## Production analysis 3Presentation Transcript

• PRODUCTION ANALYSIS
• TOTAL PRODUCT The total quantity of goods produced by a firm( or a factor) during a specified period of time is called its “Total Production”
• MARGINAL PRODUCT AVERAGE PRODUCT Average Product = Total Product/Number of units of variables factor
• LAW OF VARIABLE PROPORTIONS
• THREE STAGES OF LAW OF VARIABLE PROPORTIONS O Y X B A MP AP TP C E D F POINT OF INFLEXION STAGE III STAGE II STAGE I UNIT OF VARIABLE FACTOR OUTPUT
• CAUSES FOR INCRESING RETURNS
• Indivisibility
• Specialization
• LAW OF RETURNS TO SCALE
• A change in scale means that all inputs or factors are varied in the same proportion, keeping the factor proportions constant. When the quantities of all factors are changed along a particular scale, size of the firm and scale of output will change. The responsiveness of output to such changes in inputs is called “returns to scale”
• n = m
• n > m
• n < m
• LAW OF RETURNS TO SCALE Constant Returns Increasing Returns Diminishing Returns O Scale OF Inputs 5 6 7 8 9 10 1 2 3 4 Marginal Products Y X
• ECONOMIES OF SCALE A business firm expands its scale of production to earn profit. It derives many economies of large scale production which, in turn, help in lowering the cost of production and increasing its productive efficiency. Such economies that occur to a firm in the cause of expansion of its scale of operation by increasing all the factors or by increase in the number of firms in the industry are called “Economies of Scale”
• INTERNAL ECONOMIES
• Specialization and Division of Labour
• Technical Economies
• Production Economies
• Managerial Economies
• Marketing Economies
• Financial Economies
• Risk and Survival Economies
• Economies of Employee Welfare Schemes
• INTERNAL DISECONOMIES
• Inefficiency of Management
• Technical Diseconomies
• Financial Diseconomies
• Risk and Survival Diseconomies
• Limited Availability of the Natural Resources
• EXTERNAL ECONOMIES AND (DISECONOMIES) When many firms expand in a particular area, each member firm secures a number of economies advantages, which are known as “External Economies” . These advantages are generated outside the firm. These advantages will arise, whether the industry consists of a few large firms or many small firms.