Basics of production

production - Input - production function

1. Basics of Production Prepared By: Mohammed Jasir PV Asst. Professor MIIMS, Puthanangadi Contact: 9605 69 32 66

2. Production Production is the process of converting input into output. Inputs Land Labour Capital Raw Materials Machines Outputs Goods & Services Transformation Process Production

3. In economics, production may be defined as creation of value, which can be of two varieties, namely use value (value of functions performed) exchange value (measure of all features of the product which make the product possible of being traded) Thus production is the activity which creates or adds utility and value. Factors of production or agents of production Land Labour Capital Organization

4. Theory of production Theory of production determines , how the producer , given the state of technology combines various inputs economically to produce a definite amount of output in an efficient manner.

5. Production analysis Production analysis basically concerned with the analysis in which the resources such as land, labor, and capital are employed to produce a firm’s final product. To produce these goods basic inputs are classified as Variable inputs :-Input those change or are variable in the short run or long run are variable inputs. Fixed inputs :-An input for which level of usage cannot readily be changed.

6. Time horizon of analysis Two different time periods are used to develop theories of production and production cost are Short run:- the period of time in which labor and material can be changed, but all inputs cannot be changed simultaneously, especially equipment and machinery cannot be fully modified or increased. Long run:- long run is defined as that time period over which a firm can vary quantities of all factors of production

7. Some important concepts in production Total product Average Product Marginal Product Return to a factor

8. Total product :- It is the quantity of output a firm obtains from a given quantity of that factor input, while all other factors are constant. It denotes total output from a production system. (TP) Average Product:- It is the output produced per unit of input. Average product of a factor of production is the total product of that factor divided by the quantity of that factor, while all the remaining factors are held constant. AP=𝑇𝑜𝑡𝑎𝑙 𝑝𝑟𝑜𝑑𝑐𝑡(𝑇𝑃) / 𝑁𝑜 𝑜𝑓 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑓𝑎𝑐𝑡𝑜𝑟 𝑢𝑛 i 𝑡𝑠(𝑛)

9. MARGINAL PRODUCT (MP) It is the addition to the total product from the use of an additional unit of variable factor employed. MP= TPn –TP(n-1) TPn - is the total product of n units of variable factors TPn -l is the total product when (n-1) units of variable factors are employed RETURN TO A FACTOR It is the relationship between output and variation in one input while keeping the other factor inputs constant.

10. Production function The functional relationship between input and output is known as production function. The production function states the maximum quantity of output which can be produced from any selected combination of inputs.

11. Production function may be classified into two Short-run production function :-which is explained by law of variable proportions. Long-run production function :-which is explained by returns to scale

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