Edited by Jamil Malik

2. Zia Khan 009
Atif Faryad 023
Naveed Anjum 043
Mudasser Iqbal 050
Hamza Dar 057

3. Theory of Production

4.  Introduction
 Production
 Production Functions
 Factors of Production
 Pricing of Factor of Production
 Types of production
 Concept of Production
 Conclusion

5. “Production theory is the study of production, or the
economic process of converting inputs into outputs”

6. “Production is the act of producing good and services
which fetch a price in the market”
Example:
The process of production of
ARMANI’s JEANS.

8. Production function shows technical process in which
inputs are transform into output. In an optimum way
during a specific period of time.
Q=ƒ (L,K)
Q= Output
L= Labour
K= Capital

9. • The part of the earth's surface that is not covered by
water and used in business productionLand
• The aggregate of all human physical and mental effort
used in creation of goods and servicesLabour
• Financial assets or the financial value of assets, such as
cash, the factories, machinery and equipment owned by
a business and used in production
Capital
• Organization is an arrangement of people in a specific
place for specific purpose during a period of timeOrganization
Factors of Production

11. Land Rent
Labour Wages
Capital Interest
Organization Profit

12. Types of production
• In this type Land, Capital and Organization are fixed
factor of production while Labour is variable factor.
• Its time period is one year or less.
• Example :- Seasonal Industry (Ice factory).
Short run
• In this type all factors of production are variable.
• Its time period is more than one year.
• Example:- Textile Industry.
Long run

14. Concepts of production
Total Product (T.P)
Marginal product (M.P)
Average Product (A.P)

15. Total Product
Total output produced by employing all units of inputs.
Formula:
T.P = Output units produced
Input used

16. Marginal product
Net addition to the total product by employing an
additional unit of input.
Formula:
MPL = dTP
dL

17. Average Product
Output per unit of input is called average product.
Formula:
APL = TP
L

18. Table
Production with One Variable Input
0
1
2
3
4
5
6
7
8
9
10
10
10
10
10
10
10
10
10
10
10
10
0
10
30
60
80
95
108
112
112
108
100
_
10
20
30
20
15
13
4
0
-4
-8
_
10
15
20
20
19
18
16
14
12
10
Short run Production Function with Labour as Variable factor
Labour
(L)
Capital
(K)
Total
Output
(TP)
Average
Product
(AP)
Marginal
Product
(MP)

19. A
C
B
Total Product
Labor per month
3
4 8
84
3
E
Average product
Marginal product
Output per
month
112
Labor per month
60
30
20
10
D

20. Conclusion
By the above discussion we can concluded that
production theory play a vital role in the success of
any organization. As it helps in pricing of
commodity or product of an organization. Because
it tells us about the cost of factor of production,
which an organization bear to produce a product
or commodity.