Important point of view better understanding , useful information etc

1. THEORY OF PRODUCTION
CHAPTER -
2

2. INTRODUCTION
Whatever is used in producing a commodity is called its inputs.
For example, for producing wheat, a farmer uses inputs like
soil, tractor, tools, seeds, manure, water and his own services.
All the inputs are classified into two groups—primary inputs
and secondary inputs. Primary inputs render services only
whereas secondary inputs get merged in the commodity for
which they are used.
Input Process Output

3. FACTOR OF PRODUCTION
1. Land
2. Labour
3. Capital
4. Entrepreneur

4. 1. LAND
It refers to all natural resources which are free gifts of nature.
Land, therefore, includes all gifts of nature available to
mankind—both on the surface and under the surface, e.g., soil,
rivers, waters, forests, etc
Land is free gift of nature.
It is fixed in quantity.
It is not perishable.
It is immobile factor of production.
It is differed in quality.

5. 2. LABOUR
Human efforts done mentally or physically with the aim of
earning income is known as labour. Thus, labour is a physical
or mental effort of human being in the process of production.
The compensation given 23 to laborer's in return for their
productive work is called wages (or compensation of
employees).
Labour cannot be separable from labourer.
It is most perishable factor of production.
Its efficiency is differing from each other.
Labour also affected by some external factor.
Labour is mobile factor.

6. 3. CAPITAL
All man-made goods which are used for further production of
wealth are included in capital. Thus, it is man-made material
source of production. Alternatively, all man-made aids to
production, which are not consumed/or their own sake, are
termed as capital.
Capital is a part of wealth.
Capital is accountable.
Capital is highly mobile factor.
Capital quantity depends on rate of return.

7. 4. ENTREPRENEUR
An entrepreneur is a person who organizes the other factors and undertakes
the risks and uncertainties involved in the production. He hires the other three
factors, brings them together, organizes and coordinates them so as to earn
maximum profit. For example, Mr. X who takes the risk of manufacturing
television sets will be called an entrepreneur.
It is live factor of production.
It is highest mobile factor.
It bears loss and gaining profit.

8. TYPES OF COST
1. Real Cost
2. Opportunity Cost
3. Money Cost ( Explicit and
Implicit cost)
4. Production Cost
5. Selling Cost
6. Fixed Cost
7. Variable Cost
8. Total Cost
9. Average Cost
10.Sunk Cost

9. BREAK - EVEN ANALYSIS

10. ASSUMPTION OF BREAK-EVEN
ANALYSIS
The total costs may be classified into fixed and variable
costs. semi-variable cost.
The cost and revenue functions remain linear.
The price of the product is assumed to be constant.
The volume of sales and volume of production are equal.
The fixed costs remain constant over the volume under
consideration.
It assumes constant rate of increase in variable cost.

11. It assumes constant technology and no improvement
in labour efficiency.
The price of the product is assumed to be constant.
The factor price remains unaltered.
Changes in input prices are ruled out.
In the case of multi-product firm, the product mix is
stable.

12. THE LIMITATIONS OF BREAK-EVEN
ANALYSIS
Fails to be applied effectively in the multiple products
situation
Fails to be implemented in the situation where cost
and price cannot be ascertained and where historical
data is not available
Assumes fixed costs to be constant
Assumes that quantity of goods produced is equal to
the quantity of goods sold, which may not be always
true
Ignores changes in selling prices

13. IMPORTANT QUESTIONS:
Q.1 Explain the meaning of factor of production.
Q.2 Explain the Factor of production in detail.
Q.3 Explain the cost concept. OR explain the different cost in
economy.
Q.4 What is break even analysis? Derived the assumption of breakeven
analysis.