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1. Lesson 6 Production

2. Lesson Outline 1. Concept of Production 2. Factors of Production 3. Production Function 4. Business Organizations 2

3. Essential Question: How do various production factors influence an economy's efficiency and output?

4. Concept of production 4

5. Production In economics, Production is a process of transforming tangible and intangible inputs into goods or services. Raw materials, land, labor, and capital are the tangible inputs, whereas ideas, information, and knowledge are the intangible inputs. These inputs are also known as factors of production. 5

6. Production in Economics can be defined as an organized activity of transforming physical inputs (resources) into outputs (finished products), which will satisfy the products’ needs of the society. - James Bates and J.R. Parkinson 6

7. Production in Economics is an activity whether physical or mental, which is directed to the satisfaction of other people’s wants through exchange. - J.R. Hicks 7

8. What Is the Production Possibility Frontier (PPF)? The production possibility frontier (PPF) is a curve on a graph that illustrates the possible quantities that can be produced of two products if both depend upon the same finite resource for their manufacture. The PPF is also referred to as the production possibility curve (PPC). PPF also plays a crucial role in economics. For example, it can demonstrate that a nation’s economy has reached the highest level of efficiency possible. 8

9. Understanding the Production Possibility Frontier (PPF) The PPF is the area on a graph representing production levels that cannot be obtained given the available resources; the curve represents optimal levels. Here are the assumptions involved: A company/economy wants to produce two products. There are limited resources. Technology and techniques remain constant. All resources are fully and efficiently used. 9

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11. Production Possibility Frontier (PPF) on a National Scale Imagine a national economy that can produce only two things: wine and cotton. If points A, B, and C are plotted on a curve, it represents the economy’s most efficient use of resources. 11

12. Factors of Production 12

13. Factors of Production Factors of Production in Economics are the inputs that are used for producing the final output with the main aim of earning an economic profit. Land , labor , capita l, and entrepreneurship are the main factors of production. Each and every factor is important and plays a distinctive role in the organization. 13

14. Land Land is the gift of nature and includes the dry surface of the earth and the natural resources on or under the earth’s surface, such as forests, rivers, sunlight, etc. 14

15. Characteristics which would qualify a given factor to be called land Land is a free gift of nature Land is a free gift of nature Land is permanent and has indestructible powers Land is a passive factor Land is immobile Land has multiple uses Land is heterogeneous 15

16. Labor Labor is the physical and mental efforts of human beings that undertake the production process. It includes unskilled, semi-skilled, and highly skilled labor. The supply of labor is affected by the change in its prices. It increases with an increase in wages. The return for labor is called wages and salary. 16

17. Characteristics of labor: Human Effort Labor is perishable Labor is an active factor Labor is inseparable from the laborer Labor power differs from laborer to laborer All labor may not be productive Labor has poor bargaining power Labor is mobile There is no rapid adjustment of the supply of labor to the demand for it Choice between hours of labor and hours of leisure 17

18. Capital Capital is the wealth created by human beings. It is one of the important factor of production of any kind of goods and services, as production cannot take place without the involvement of capital. 18

19. Capital Physical capital includes tangible resources, such as buildings, machines, tools and equipment, etc. Human capital includes knowledge and skills of human resource, which is gained by education, training and experience. Return for capital is termed as interest. 19

20. Types of Capital Fixed capital Circulating capital Real capital Human capital Tangible capital Individual capital Social Capital 20

21. Entrepreneur Entrepreneurship consists of three major functions, viz., coordination, management and supervision. An entrepreneur is a person who creates an enterprise. The success or failure depends on the efficiency of the entrepreneur. 21

22. Entrepreneur An enterprise is an organization that undertakes commercial purposes or business ventures and focuses on providing goods and services. An enterprise is composed of individuals and physical assets with a common goal of generating profits. 22

23. Functions of an entrepreneur Initiating business enterprise and resource co-ordination Risk-bearing or uncertainty-bearing Innovations 23

24. Production Function 24

25. What Is a Production Function? 25 The production function is a mathematical equation determining the relationship between the factors and quantity of input for production and the number of goods it produces most efficiently. It answers the queries related to marginal productivity, level of production, and cheapest mode of production of goods.

26. What Is a Production Function? 26

27. What Is a Production Function? 27 The general production function formula is: Q= f (K, L) Here Q is the output quantity,  L is the labor used, and  K is the  capital invested  for the production of the goods.

28. What Is a Production Function? 28 The f is a mathematical function depending upon the input used for the desired output of the production. For example, it means if the equation is re-written as:

29. Business Organizations Single Proprietorship Partnership Corporation Cooperative