Isoquant is also called as equal product curve or production indifference curve or constant product curve. Isoquant indicates various combinations of two factors of production which give the same level of output per unit of time.
Just as an indifference curve represents various combinations of two goods which give a consumer equal amount of satisfaction, an iso-product curve shows all possible combinations of two inputs physically capable of producing a given level of output. Since an iso-product curve represents those combinations which will result in the production of an equal quantity of output, the producer would be indifferent between them.
This law was given by Alfred Marshall in his book principle of economics.
It show particular pattern of change in output when some factor remain fixed.
Production depend upon factors of production , if factors of production are good, production may increase and vice-versa.
Production function show functional relationship between production and factors of production.
It refers to manner of change in output cost by the increase in all the input simultaneously and in the same proportion.
Returns refers to “change in physical output”
Scale refers to “quantity of input employed”
Change in scale means that all factors of production are increased or decreased in same proportion.
The cost advantage that arises with increased output of a product.
It arises because of the inverse relationship between the quantity produced and per-unit fixed cost.
Profit refers to the excess of receipts from the sale of goods over the expenditure incurred on producing them.
The amount received from the sale of goods is known as ‘revenue’ and the expenditure on production of such goods is termed as ‘cost’. The difference between revenue and cost is known as ‘profit’.
For example, if a firm sells goods for Rs. 10 crores after incurring an expenditure of Rs. 7 crores, then profit will be Rs. 3 crores.
2. The cost advantage that arises with increased
output of a product.
It arises because of the inverse relationship
between the quantity produced and per-unit
fixed cost.
2
3. In the process of expansion, the producer
may benefit from the emergence of
economies of scale. These economies are
classified into two types:
Economies of scale
Internal
economies
External
economies
3
4. Internal economies of scale :- lower long run
average costs resulting from a firm growing
in size.
External economies of scale :- lower long run
average costs resulting from an industry
growing in size.
4
5. As a firm increases its scale operation, there
are number of reasons reasons responsible
for a decline in average cost.These include:
1. Buying economies
2. Selling economies
3. Managerial economies
4. Financial economies
5. Technical economies
6. Research and development economies
7. Risk bearing economies 5
6. These are the best known type. Large firms that buy
raw materials in bulk and place large orders for
capital equipment usually receive a discount. This
means that they have paid less for each item
purchased. They may receive a better treatment
because the suppliers will be anxious to keep such
large customers.
6
7. Every part of marketing has a cost – particularly
promotional methods such as advertising and
running a sales force. Many of these marketing
costs are fixed costs and so as a business gets larger,
it is able to spread the cost of marketing over a
wider range of products and sales – cutting the
average marketing cost per unit.
7
8. As a firm grows, there is greater potential for
managers to specialize in particular tasks (e.g.
marketing, human resource management, finance).
Specialist managers are likely to be more efficient
as they possess a high level of expertise, experience
and qualifications compared to one person in a
smaller firm trying to perform all of these roles.
8
9. Many small businesses find it hard to obtain finance
and when they do obtain it, the cost of the finance is
often quite high. This is because small businesses
are perceived as being riskier than larger businesses
that have developed a good track record. Larger
firms therefore find it easier to find potential
lenders and to raise money at lower interest rates.
9
10. Businesses with large-scale production can use
more advanced machinery (or use existing
machinery more efficiently). This may include using
mass production techniques, which are a more
efficient form of production. A larger firm can also
afford to invest more in research and development.
10
11. A large firm can have a research and
development department, since running such
a department can reduce average costs by
developing more efficient methods of
production and raise total revenue by
developing new products.
11
12. Larger firms produce a range of products.
This enables them to spread the risks of
trading. If the profitability of one of the
products it produces falls, it can shift its
resources to the production of more
profitable products.
12
13. 1. Transportation and communication
2. Skilled labour
3. Facility of workshop
4. Helping industry
5. Research and experiment
6. Banking facility
13
14. Concentration of firms provides better
communication system for all. Rail, road
facilities become available to all, the
transport system reduces cost.
14
15. With the concentration of firms skilled labour
is available to all the firms because people
living in the nearby areas get technical
training.
15
16. Concentration of firms provides incentive for
the technical persons to establish their
workshops and hence, all the firms benefit
from these, because they need not to incur
costs in establishing the workshops.
16
17. This economy arises because of concentration of
firms. In local industry it becomes possible to split
up some of the processes which are taken over by
specialist firms. For example in Faisalabad with the
textile mills dying factories, designing centers,
ginning factories and calendaring plants have been
established.
17
18. In local industry, research and development
are centralized. Each individual firm needs
not to spend a separate amount on research
and development. They benefit from
common pool.
18
19. The basic aim of a commercial bank is to
maximize profits and for this they need
deposits and provide credit to the traders,
businessmen and Industrialists etc. In a
localized industry or business centers bank
opens their branches and all the firms benefit
from banking and credit facility.The banking
system helps in promoting trade and
business.
19