Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
Production
•“The organized process of transformation
of raw materials into final products using
men and machines is termed...
1. Land:-
• Land does not only refer to soil, it includes
other facilities of natural resources. Using
land for industrial...
2.Labor:-
• Labor represents the human capital
available to transform raw material into
consumer goods.
• Human capital in...
3.Capital:-
• Capital represents the major physical assets
individuals and companies use while
producing goods or services...
4.Enterpreneurship:-
• Entrepreneurship is considered as an
important factor because economic
resources are not directly t...
Laws Of Production
1.Law Of Variable Proportions:-
• This law deals with the concept of increasing
productivity using chan...
Graph Of Variable Proportions
Stage 1: Average and
total product rising.
Stage 2: Average
product declining, but
marginal ...
2.Law Of Returns To Scale
• Following are three laws of returns to
scale:-
a) Law Of Increasing Returns
b) Law Of Constant...
a)Law Of Increasing Returns:-
• “As the proportion of one factor in a
combination of factors is increased, up to a
point, ...
SCALE OF
PRODUCTION
MARGINAL
RETURN
b) Law Of Constant Returns:-
• If output increases by that same proportional
change as all inputs change then it is called...
SCALE OF PRODUCTION
MARGINAL
RETURN
c) Law Of Diminishing Returns:-
• If output increases by less than the
proportional change in inputs, there
are decreasing...
SCALE OF PRODUCTION
MARGINAL
RETURN
Case Study
Labor Marginal
Product
Total product Average
product
Stages
1 1 2 2
1
2 4 6 3
3 6 12 4
4 4 16 4
2
5 2 18 3.6
6 ...
• In the given schedule, units of variable factor
are employed with other fixed factors of
production.
• The marginal prod...
THANK
YOU
Upcoming SlideShare
Loading in …5
×

Theory of production

Production ,factors affecting production and laws of production.

  • Be the first to comment

Theory of production

  1. 1. Production •“The organized process of transformation of raw materials into final products using men and machines is termed as production.” •Production transforms tangible or intangible input into goods or services. •Production depends on the following factors:-
  2. 2. 1. Land:- • Land does not only refer to soil, it includes other facilities of natural resources. Using land for industrial purposes allows nations to improve the production processes for turning natural resources into consumer goods. • Land is not freely available and hence investment has to be done for acquiring it. • Land lacks mobility and so selection of land is a crucial factor.
  3. 3. 2.Labor:- • Labor represents the human capital available to transform raw material into consumer goods. • Human capital includes all individuals who are capable of working in the economy and providing various services to other individuals or businesses. • It is a flexible resource as workers can be allocated to different areas of the economy for production.
  4. 4. 3.Capital:- • Capital represents the major physical assets individuals and companies use while producing goods or services. These assets include buildings, production facilities, etc. • Capital also represents the monetary resources companies use to purchase natural resources, land and other capital goods.
  5. 5. 4.Enterpreneurship:- • Entrepreneurship is considered as an important factor because economic resources are not directly transformed into consumer goods. • Entrepreneurs have an idea for creating a valuable good and assume the risk involved with transforming economic resources into consumer products.
  6. 6. Laws Of Production 1.Law Of Variable Proportions:- • This law deals with the concept of increasing productivity using change in production units within limits of existing fixed cost. • “In a given state of technology, when the units of variable factor are increased within the units of other fixed factors, the marginal productivity increases at increasing rate up to certain point, then after this point it will decrease.”
  7. 7. Graph Of Variable Proportions Stage 1: Average and total product rising. Stage 2: Average product declining, but marginal product positive. Stage 3: Marginal product is negative, total product is declining.
  8. 8. 2.Law Of Returns To Scale • Following are three laws of returns to scale:- a) Law Of Increasing Returns b) Law Of Constant Returns c) Law Of Diminishing Returns
  9. 9. a)Law Of Increasing Returns:- • “As the proportion of one factor in a combination of factors is increased, up to a point, the marginal product of the factor will increase.” • Law of increasing returns to scale operates up to the optimum point i.e., the point of maximum return. As a business expands and moves towards the optimum, the return per unit goes on increasing, i.e., the cost of production is falling.
  10. 10. SCALE OF PRODUCTION MARGINAL RETURN
  11. 11. b) Law Of Constant Returns:- • If output increases by that same proportional change as all inputs change then it is called constant returns to scale. • The law of constant returns operates when the return remains the same as the business is expanded or contracted. • Whatever the scale of production is, the cost of the product per unit remains the same.
  12. 12. SCALE OF PRODUCTION MARGINAL RETURN
  13. 13. c) Law Of Diminishing Returns:- • If output increases by less than the proportional change in inputs, there are decreasing returns to scale. • It means that the increase in various factors won’t decrease cost of production. • Diminishing returns to scale occurs if a proportional increase in all inputs results in a less than proportional increase in production.
  14. 14. SCALE OF PRODUCTION MARGINAL RETURN
  15. 15. Case Study Labor Marginal Product Total product Average product Stages 1 1 2 2 1 2 4 6 3 3 6 12 4 4 4 16 4 2 5 2 18 3.6 6 0 18 3 3 7 -2 16 2.28
  16. 16. • In the given schedule, units of variable factor are employed with other fixed factors of production. • The marginal productivity of labor goes on increasing up to the 3rd worker. This so because the proportion of workers to other fixed factors was at first insufficient. • After 3rd worker marginal productivity goes on falling onwards till it drops down to zero at 6th unit of labor. • The 7th worker is only a cause of obstruction to the others and is responsible in making the marginal productivity negative.
  17. 17. THANK YOU

×