Law of variable proportion
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The law of variable proportions states that when one variable input is increased while other inputs are held fixed, marginal productivity initially increases but eventually decreases. It assumes technology remains constant and one input can vary while others are fixed. Marginal productivity rises until the third worker is added, then falls, reaching zero at the sixth worker and becoming negative at the seventh worker. The law has three stages: increasing returns as marginal exceeds average productivity, diminishing returns as both fall but remain positive, and negative returns as marginal productivity declines below zero.
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Law of variable proportion
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.
Law of variable proportion
The document discusses the law of variable proportions, which examines how output changes when the quantity of one input (the variable factor) is increased while keeping other inputs fixed. It defines the law, lists its assumptions, and explains it using a tabular example of increasing a fixed amount of land with varying labor. Total product, marginal product, and average product are calculated at each stage. Graphically, there are three stages: increasing returns, diminishing returns, and negative returns. Causes of each stage are also provided, such as underutilization of fixed factors in the first stage and imperfect substitutability of factors in later stages.
Law of variable proportion
1. The law of variable proportions examines production with one variable input while keeping other inputs fixed.
2. It describes three stages: initially increasing marginal returns, then diminishing marginal returns, and finally negative marginal returns.
3. An example is given of a farmer using increasing amounts of labor on a fixed amount of land, showing total product first rising at an increasing rate, then a diminishing rate, and eventually falling as marginal returns become negative.
Law of variable proportion
This presentation gives an introduction to law of Proportionality which is also called Law of variable proportion.
Law of variable proportions
The law of variable proportions states that as the quantity of one variable input (such as labor) is increased, while holding fixed inputs (such as land and capital) constant, marginal product and average product will initially increase but will eventually decrease. There are three stages: 1) initially increasing returns as variable inputs are optimally combined with fixed inputs, 2) diminishing returns as variable inputs become excessive relative to fixed inputs, and 3) negative returns with too many variable inputs. Producers will operate in the stage of diminishing returns to maximize total output from their fixed resources.
Returns to scale
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.
Theory of production
This unit discusses the theory of production. It defines production as converting resources into outputs that satisfy human wants. The key factors of production are land, labor, capital, and entrepreneurship. The production function shows the relationship between inputs like capital and labor, and the quantity of output produced. There are laws of variable proportions and returns to scale. Production optimization involves finding the least-cost combination of inputs using isoquants and isocost lines, where the tangency point indicates the producer's equilibrium.
law of variable proportion
This presentation discusses the law of variable proportions, including:
- Defining production functions and the factors of labor, capital, and land.
- Describing the law of variable proportions as predicting the consequences of varying fixed and variable production factors.
- Outlining the three stages of production under this law: increasing returns, diminishing returns, and negative returns.
- Explaining the key differences between the law of variable proportions, which looks at varying one factor while holding others fixed, and returns to scale, which increases all factors simultaneously.
Recommended
Law of variable proportion
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.
Law of variable proportion
The document discusses the law of variable proportions, which examines how output changes when the quantity of one input (the variable factor) is increased while keeping other inputs fixed. It defines the law, lists its assumptions, and explains it using a tabular example of increasing a fixed amount of land with varying labor. Total product, marginal product, and average product are calculated at each stage. Graphically, there are three stages: increasing returns, diminishing returns, and negative returns. Causes of each stage are also provided, such as underutilization of fixed factors in the first stage and imperfect substitutability of factors in later stages.
Law of variable proportion
1. The law of variable proportions examines production with one variable input while keeping other inputs fixed.
2. It describes three stages: initially increasing marginal returns, then diminishing marginal returns, and finally negative marginal returns.
3. An example is given of a farmer using increasing amounts of labor on a fixed amount of land, showing total product first rising at an increasing rate, then a diminishing rate, and eventually falling as marginal returns become negative.
Law of variable proportion
This presentation gives an introduction to law of Proportionality which is also called Law of variable proportion.
Law of variable proportions
The law of variable proportions states that as the quantity of one variable input (such as labor) is increased, while holding fixed inputs (such as land and capital) constant, marginal product and average product will initially increase but will eventually decrease. There are three stages: 1) initially increasing returns as variable inputs are optimally combined with fixed inputs, 2) diminishing returns as variable inputs become excessive relative to fixed inputs, and 3) negative returns with too many variable inputs. Producers will operate in the stage of diminishing returns to maximize total output from their fixed resources.
Returns to scale
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.
Theory of production
This unit discusses the theory of production. It defines production as converting resources into outputs that satisfy human wants. The key factors of production are land, labor, capital, and entrepreneurship. The production function shows the relationship between inputs like capital and labor, and the quantity of output produced. There are laws of variable proportions and returns to scale. Production optimization involves finding the least-cost combination of inputs using isoquants and isocost lines, where the tangency point indicates the producer's equilibrium.
law of variable proportion
This presentation discusses the law of variable proportions, including:
- Defining production functions and the factors of labor, capital, and land.
- Describing the law of variable proportions as predicting the consequences of varying fixed and variable production factors.
- Outlining the three stages of production under this law: increasing returns, diminishing returns, and negative returns.
- Explaining the key differences between the law of variable proportions, which looks at varying one factor while holding others fixed, and returns to scale, which increases all factors simultaneously.
Factor pricing Theory.pdf
This PPT contains matter of Factor Pricing theory for Managerial economics/Business economics/Micro economics students.
law of variable proportions
The Law of Variable Proportions states that as the quantity of one variable input is increased while holding other inputs fixed, total product will initially rise at an increasing rate, then at a decreasing rate, and eventually at a negative rate. It operates in the short-run when some factors can vary and others are fixed. The law is demonstrated through a schedule that shows as labor is incrementally increased from 1 to 6 units, total product first increases, then increases at a lower rate, and eventually decreases, moving from phases of increasing, diminishing, and negative returns.
Accelerator Theory of Investment
This document discusses the relationship between investment, national income, and the stock of capital over multiple time periods. It presents a formula to calculate the present value of future returns from a capital asset. It also shows a table illustrating how output, income, capital stock, replacement costs, net investment, and gross investment change over 6 time periods. The capital output ratio and depreciation rate are assumed to remain constant.
Law of returns to scale
Returns to scale relates to the behavior of total output as all inputs are varied and is a long run concept
Deflation
Deflation refers to a sustained reduction in the overall price level, where the inflation rate falls below zero percent and prices continue to decrease. This occurs when aggregate demand in the economy declines significantly. While a one-time price decrease is not a problem, sustained deflation can lead to a deflationary spiral as consumers delay purchases in expectation of even lower prices, further reducing demand and economic activity. Central banks aim to prevent deflation through monetary policies that increase the money supply, such as lowering interest rates, in order to stimulate demand. According to the passage, India's current low inflation rate is considered disinflation rather than deflation, as prices have not started falling continuously and the economy remains robust with around 6.5%
Isoquant curves aditi sinha
An isoquant curve shows the different combinations of two input factors (e.g. capital and labor) needed to produce a given level of output. It assumes a constant production technology and divisible factors that can be substituted for one another. Key characteristics of isoquant curves include: (1) sloping downward, indicating a tradeoff between inputs; (2) being convex, due to diminishing marginal rates of substitution; and (3) higher curves representing higher output levels. Isoquant curves differ from indifference curves in that they represent factor combinations for production rather than consumption preferences.
Price and output determination under perfec competition
Under perfect competition, firms are price takers and cannot influence the market price. The market price is determined by the intersection of total industry demand and supply. In the short run, a firm can be in a situation of normal profit, super normal profit, or loss depending on the relationship between average revenue (AR) and average cost (AC). In the long run, all firms will earn only normal profits as inefficient firms exit the industry. The shutdown point occurs when a firm's average variable cost equals its average revenue.
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Production function
This document discusses production analysis and the theory of production costs from the perspective of a firm. It covers key concepts such as:
- The three stages of production as defined by total, average, and marginal product curves. In stage one, average product is increasing. In stage two, average product is decreasing while marginal product turns negative in stage three.
- Laws of variable proportions which state that as a variable input increases, total product initially increases at an increasing rate, then at a decreasing rate, due to diminishing marginal returns.
- Long run production functions which consider all inputs as variable. Returns to scale can be increasing, constant, or diminishing based on how total output responds to a proportional increase
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Production function
The production function shows the relationship between inputs used in production (capital, labor, land, etc.) and the maximum output that can be produced from those inputs. There are two types of production functions: fixed proportions, where inputs must be used in specific quantities, and variable proportions, where inputs can be varied. The law of variable proportions states that as one variable input is increased, at some point marginal product will increase, then decrease, and eventually become negative. A production function with one variable input graphs total product, marginal product, and average product against the input level. A production function with two variable inputs uses isoquants to show combinations of inputs that produce the same output level.
Economics - Long run & short run Production
Let's face it. At some point of time in our school or college, we face a typically difficult assignment with a tricky problem, a complex equation or a case study on an obscure concept. Do you wish you had access to a qualified tutor who could help you at that moment?
Our homework assistance service, which is available 24/7 in subjects across disciplines like Finance, Accounting, Management, Engineering, Sciences, Math and ELA, is precisely the answer to your wish.
Our tutors provide you with a step-by-step working of the solution to your homework problems so that you understand the solution and the approach better. Aiming for school/college success with top grades just got easier with Online Assignment help
It has been our constant endeavor to match the best tutoring with the most affordable price. Our tutors are highly qualified, have long tutoring experience in their respective subjects and have passed our stringent screening criteria. This makes them some of the best in the tutoring industry.
We are proud to have moved over 100,000 customers closer to their cherished goals. We would be glad to be a part of your journey too.
• Our Homework help covers detailed solutions to Assignment problems, Case studies, Project Work, Research paper writing, Essay writing and review help.
Website: www.onlineassignment.net
Mail: homework@onlineassignment.net
Live Chat Available 24*7
Regards
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Philip's Curve
The Phillips curve describes an inverse relationship between unemployment and inflation, such that lower unemployment is associated with higher inflation. While observed to be stable in the short-run, it does not hold in the long-run. The document discusses the origins of the Phillips curve from William Phillips' 1958 paper and subsequent modifications by economists like Friedman and Phelps who argued it does not reflect long-run economic realities. It also examines shifts to the Phillips curve from supply shocks and how the relationship between unemployment and inflation is now understood with incorporation of inflation expectations.
Isoquants
The document discusses isoquant curves and isocost curves.
1. An isoquant curve shows all the combinations of two inputs that can produce the same level of output. It assumes inputs are substitutable to some degree in production.
2. An isocost curve connects all combinations of two inputs that can be purchased with a given budget or expenditure level, based on the prices of the inputs.
3. Firms use isoquant and isocost curves to determine the most cost-effective combination of inputs to achieve a given output level.
Effective demand
Effective demand refers to the total demand for goods and services in an economy, which includes consumption demand and investment demand. According to Keynes, effective demand determines the level of output and employment in an economy. Effective demand is low in capitalist systems because savings increase as income rises, creating a "leakage" out of the system that must be filled by investment in order to maintain output and employment levels. The economy reaches equilibrium at the point where aggregate demand and aggregate supply curves intersect, but this equilibrium may occur at less than full employment if investment is insufficient to make up the gap between income and consumption. The government therefore has an important role in managing aggregate demand to minimize unemployment.
Return to scale
This document discusses production functions and returns to scale. It defines production functions and different types including short run and long run production functions. It then explains key features like substitutability, complementarity and specificity of factors. Next it covers returns to scale, defining it as the change in output when all inputs change proportionately. It details increasing, constant and decreasing returns to scale, providing examples. Causes of each type of return are also outlined.
Theory of Production
Theory of production describes the relationship between inputs and outputs in the production process. A production function defines this relationship mathematically. In the short run, some inputs are fixed while others are variable. As the variable input increases, total output initially increases at an increasing rate (stage 1), then at a decreasing rate (stage 2), and eventually decreases (stage 3), following the law of variable proportions. In the long run, all inputs are variable. If all inputs increase proportionately, we can see increasing, constant, or decreasing returns to scale. Isoquants show the combinations of inputs that produce the same output level.
Presentation on law of variable proportion
This document summarizes the law of variable proportions from a production economics perspective. It discusses key concepts like production functions, total product, average product, and marginal product. The law states that there are three stages of production: 1) increasing returns as marginal product initially rises with each addition of a variable input, 2) diminishing returns as marginal product starts declining, and 3) negative returns when marginal product becomes negative. The law assumes one variable input is changed while all others stay fixed, and helps explain the relationship between inputs and outputs in physical production terms.
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law of variable proportions
The Law of Variable Proportions states that as the quantity of one variable input is increased while holding other inputs fixed, total product will initially rise at an increasing rate, then at a decreasing rate, and eventually at a negative rate. It operates in the short-run when some factors can vary and others are fixed. The law is demonstrated through a schedule that shows as labor is incrementally increased from 1 to 6 units, total product first increases, then increases at a lower rate, and eventually decreases, moving from phases of increasing, diminishing, and negative returns.
Accelerator Theory of Investment
This document discusses the relationship between investment, national income, and the stock of capital over multiple time periods. It presents a formula to calculate the present value of future returns from a capital asset. It also shows a table illustrating how output, income, capital stock, replacement costs, net investment, and gross investment change over 6 time periods. The capital output ratio and depreciation rate are assumed to remain constant.
Law of returns to scale
Returns to scale relates to the behavior of total output as all inputs are varied and is a long run concept
Deflation
Deflation refers to a sustained reduction in the overall price level, where the inflation rate falls below zero percent and prices continue to decrease. This occurs when aggregate demand in the economy declines significantly. While a one-time price decrease is not a problem, sustained deflation can lead to a deflationary spiral as consumers delay purchases in expectation of even lower prices, further reducing demand and economic activity. Central banks aim to prevent deflation through monetary policies that increase the money supply, such as lowering interest rates, in order to stimulate demand. According to the passage, India's current low inflation rate is considered disinflation rather than deflation, as prices have not started falling continuously and the economy remains robust with around 6.5%
Isoquant curves aditi sinha
An isoquant curve shows the different combinations of two input factors (e.g. capital and labor) needed to produce a given level of output. It assumes a constant production technology and divisible factors that can be substituted for one another. Key characteristics of isoquant curves include: (1) sloping downward, indicating a tradeoff between inputs; (2) being convex, due to diminishing marginal rates of substitution; and (3) higher curves representing higher output levels. Isoquant curves differ from indifference curves in that they represent factor combinations for production rather than consumption preferences.
Price and output determination under perfec competition
Under perfect competition, firms are price takers and cannot influence the market price. The market price is determined by the intersection of total industry demand and supply. In the short run, a firm can be in a situation of normal profit, super normal profit, or loss depending on the relationship between average revenue (AR) and average cost (AC). In the long run, all firms will earn only normal profits as inefficient firms exit the industry. The shutdown point occurs when a firm's average variable cost equals its average revenue.
Determinants of Consumption Function
The document discusses various determinants and theories of consumption functions, including subjective psychological factors, objective external factors like changes in wages and fiscal policy, and relative income hypotheses developed by Duesenberry which posit that consumption preferences are interdependent and demonstrate the tendency of individuals to emulate the consumption patterns of wealthier peers. It also examines measures that can raise the propensity to consume and provides an overview of different types of consumption function theories including absolute, relative, permanent income, and life cycle hypotheses.
Elasticity of demand
Elasticity of Demand, Price Elasticity, Income Elasticity, Cross Elasticity, Advertising Elasticity, Uses of Elasticity in managerial decisions,
Income elasticity of demand
Income elasticity of demand is the degree of responsiveness of quantity demanded of a commodity due to change in consumer’s income, other things remaining constant. In other words, it measures by how much the quantity demanded changes with respect ot the change in income.
Production function
This document discusses production analysis and the theory of production costs from the perspective of a firm. It covers key concepts such as:
- The three stages of production as defined by total, average, and marginal product curves. In stage one, average product is increasing. In stage two, average product is decreasing while marginal product turns negative in stage three.
- Laws of variable proportions which state that as a variable input increases, total product initially increases at an increasing rate, then at a decreasing rate, due to diminishing marginal returns.
- Long run production functions which consider all inputs as variable. Returns to scale can be increasing, constant, or diminishing based on how total output responds to a proportional increase
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This power point will give you the basic idea about inflation and how it occurs and remedies to control it........
Production function
The production function shows the relationship between inputs used in production (capital, labor, land, etc.) and the maximum output that can be produced from those inputs. There are two types of production functions: fixed proportions, where inputs must be used in specific quantities, and variable proportions, where inputs can be varied. The law of variable proportions states that as one variable input is increased, at some point marginal product will increase, then decrease, and eventually become negative. A production function with one variable input graphs total product, marginal product, and average product against the input level. A production function with two variable inputs uses isoquants to show combinations of inputs that produce the same output level.
Economics - Long run & short run Production
Let's face it. At some point of time in our school or college, we face a typically difficult assignment with a tricky problem, a complex equation or a case study on an obscure concept. Do you wish you had access to a qualified tutor who could help you at that moment?
Our homework assistance service, which is available 24/7 in subjects across disciplines like Finance, Accounting, Management, Engineering, Sciences, Math and ELA, is precisely the answer to your wish.
Our tutors provide you with a step-by-step working of the solution to your homework problems so that you understand the solution and the approach better. Aiming for school/college success with top grades just got easier with Online Assignment help
It has been our constant endeavor to match the best tutoring with the most affordable price. Our tutors are highly qualified, have long tutoring experience in their respective subjects and have passed our stringent screening criteria. This makes them some of the best in the tutoring industry.
We are proud to have moved over 100,000 customers closer to their cherished goals. We would be glad to be a part of your journey too.
• Our Homework help covers detailed solutions to Assignment problems, Case studies, Project Work, Research paper writing, Essay writing and review help.
Website: www.onlineassignment.net
Mail: homework@onlineassignment.net
Live Chat Available 24*7
Regards
Online Assignment
Philip's Curve
The Phillips curve describes an inverse relationship between unemployment and inflation, such that lower unemployment is associated with higher inflation. While observed to be stable in the short-run, it does not hold in the long-run. The document discusses the origins of the Phillips curve from William Phillips' 1958 paper and subsequent modifications by economists like Friedman and Phelps who argued it does not reflect long-run economic realities. It also examines shifts to the Phillips curve from supply shocks and how the relationship between unemployment and inflation is now understood with incorporation of inflation expectations.
Isoquants
The document discusses isoquant curves and isocost curves.
1. An isoquant curve shows all the combinations of two inputs that can produce the same level of output. It assumes inputs are substitutable to some degree in production.
2. An isocost curve connects all combinations of two inputs that can be purchased with a given budget or expenditure level, based on the prices of the inputs.
3. Firms use isoquant and isocost curves to determine the most cost-effective combination of inputs to achieve a given output level.
Effective demand
Effective demand refers to the total demand for goods and services in an economy, which includes consumption demand and investment demand. According to Keynes, effective demand determines the level of output and employment in an economy. Effective demand is low in capitalist systems because savings increase as income rises, creating a "leakage" out of the system that must be filled by investment in order to maintain output and employment levels. The economy reaches equilibrium at the point where aggregate demand and aggregate supply curves intersect, but this equilibrium may occur at less than full employment if investment is insufficient to make up the gap between income and consumption. The government therefore has an important role in managing aggregate demand to minimize unemployment.
Return to scale
This document discusses production functions and returns to scale. It defines production functions and different types including short run and long run production functions. It then explains key features like substitutability, complementarity and specificity of factors. Next it covers returns to scale, defining it as the change in output when all inputs change proportionately. It details increasing, constant and decreasing returns to scale, providing examples. Causes of each type of return are also outlined.
Theory of Production
Theory of production describes the relationship between inputs and outputs in the production process. A production function defines this relationship mathematically. In the short run, some inputs are fixed while others are variable. As the variable input increases, total output initially increases at an increasing rate (stage 1), then at a decreasing rate (stage 2), and eventually decreases (stage 3), following the law of variable proportions. In the long run, all inputs are variable. If all inputs increase proportionately, we can see increasing, constant, or decreasing returns to scale. Isoquants show the combinations of inputs that produce the same output level.
Presentation on law of variable proportion
This document summarizes the law of variable proportions from a production economics perspective. It discusses key concepts like production functions, total product, average product, and marginal product. The law states that there are three stages of production: 1) increasing returns as marginal product initially rises with each addition of a variable input, 2) diminishing returns as marginal product starts declining, and 3) negative returns when marginal product becomes negative. The law assumes one variable input is changed while all others stay fixed, and helps explain the relationship between inputs and outputs in physical production terms.
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Law of variable proportion
- 1. Definition: The law ofvariable proportion can be started as, “In a given state of technology, when the units of variable factors of production (labor) are increased with the units of other fixed factors, the marginal productivity increases at increasing rate up to a point after that point it will become less and less”. Assumptions of Law: 1. This law assumes that technology does not change throughout the operation of the law. 2. One factor of production has to be fixed for this law. 3. The law is based on the possibility of varying the proportions in which the various factors can be combined to produce a product. This law is not applicable where the factors must be used in fixed proportion to yield a product. Explanation of the law: The law of variable proportion can be explained with the help of table and graph. Schedule: Explanation: In the above schedule units of variable factors (workers) are employed with the other fixed factors of production. The marginal productivity of labor goes on increase up to 3rd worker. After the 3rd worker the marginal productivity goes on falling on wards till it drops down to zero at the 6th unit of labor. The 7th worker is responsible in making the making the marginal productivity negative. The marginal productivity (MPW) and average productivity (APW) equalize at the 4th worker then MPWfalls more sharply. Land Workers (w) TPW MPW APW Stage of Production 1 1 10 10 10 I.Increasing returns 1 2 30 20 15 1 3 60 30 20 1 4 80 20 20 1 5 90 10 18 II. Diminishing Returns1 6 90 0 15 1 7 80 (10) 11.5 III. Negative returns 1 8 64 (16) 8
- 2. Graph: Explanation: Stage-I (Increasing Return) First stage begins from the originand ends where MP curve cuts AP curve at point E from above.Here, TP increases at an increasing rate to the point A (point of inflection) and then increases at a decreasing rate. Corresponding to the point A,MP increases up to the point D and then starts falling -but is still higher than average production and the AP continues to rise. Stage-II (Diminishing Return) The second stage begins from the point E and ends at that point F where MP is zero. At this stage both MP and AP go on falling and both of them are positive. The total production TP goes on rising at a diminishing rate. This is stage where a firm wishes to operate. Stage-III (Negative Return) The third stage begins whereMP curve cuts the OW-axis at point F and goes downward.Here MP is negative, TP starts diminishing and AP continues to diminish but must always be greater than zero.