Unit 1 PPT ddd on Production_and_Cost.pptx

ppt

1. Production and Costs Microeconomics Concepts for Engineering Students

2. Introduction to Production Production refers to the process of converting inputs (resources) into outputs (goods/services). Factors of Production: - Land - Labour - Capital - Entrepreneurship

3. Types of Production - Primary Production: Use of natural resources (e.g., farming) - Secondary Production: Manufacturing and construction - Tertiary Production: Services like transport, banking, etc.

4. Laws of Production 1. Law of Variable Proportions: - Applies in short-run - As more units of a variable input are added to fixed inputs, output increases at a decreasing rate. 2. Law of Returns to Scale: - Applies in long-run - Describes how output changes when all inputs are increased proportionately.

5. Cost Concepts - Fixed Costs (FC): Do not vary with output (e.g., rent) - Variable Costs (VC): Change with output (e.g., raw materials) - Total Cost (TC) = FC + VC - Average Cost (AC) = TC / Output - Marginal Cost (MC): Cost of producing one additional unit

6. Short-Run Cost Curves - AFC: Always falls as output increases - AVC: U-shaped due to law of variable proportions - AC: Also U-shaped - MC: Intersects AVC and AC at their minimum points

7. Long-Run Cost Curves - No fixed inputs; all inputs are variable - Long-Run Average Cost (LAC) curve is U-shaped due to economies and diseconomies of scale

8. Economies of Scale Internal Economies: - Technical, Managerial, Financial, Marketing External Economies: - Arise due to growth of the industry (e.g., skilled labour availability, infrastructure)

9. Practical Applications - Helps firms in production planning - Cost control and pricing decisions - Optimization of resource use