production funcation
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Transcript of production funcation
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HARYANA SCHOOL OF BUSINESS PRESENTETION :- MANAGRIAL ECONOMIC production function
GURU JAMBHESHWER SCIENCE & TECHNOLOGY UNIVERSITY ,HISSAR
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“PRODUCTION IS THE TRANSFORMETION OF INPUT INTO OUTPAT “
WHAT IS PRODUCTION ????
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PRODUCTION FUNCTION
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“Production function is the relation between A firm’s production (output) and the material factor of production (input)”
_Watson
PRODUCTION FUNCATION
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Total product (TP)Average product (AP)Marginal product (MP)
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In the Short Run the Plant Size is fixedTo increase production firms increase Labor but can’t expand their plant Labor Productivity
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Short Run vs. Long Run
The short run is defined as the period of time when the plant size is fixed.
The long run is defined as the time period necessary to change the plant size.
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Plant size is fixed, labor is variable
Both Plant size and labor are variable
To increase production firms increase Labor but can’t expand their plant
To increase production firms can increase both: Plant size and Labor
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• Total product is the total amount of goods and services product in a given period .
TOTAL PRODUCT
• Marginal product is the change in total product due to application of one more or less unit of variable factor .
MARGINAL PRODUCT
• A average production is per unit production of the variable factor .
AVERAGE PRODUCT
Three concept of production function
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Returns to a factor : law of variable proportions
The law of variable proportion states that the input of one resources is increased by equal increment per unit of time while the inputs of other resources are held constant , total output will increases , but beyond some point the resulting output increases will become smaller and smallerleftwich
LAW OF PRODUCTION
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ASSUMPTION OF LAW
The ratio which factor of production are combined can be
changed. units of variable factor are
homogeneous or equally efficient and are increased one by one. Thus diminishing returns start occurring not because latter unit of the variable factor are less efficient then the former once , but because fixity of the factor . State of technology does not change.
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indivisibility of factors Change in factor ratioImperfect substitutes
Condition of applicability
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• Increasing return to a factor :- increase return to factor sates as the proportion of one factor in a combination of factors is increased upto a point the, marginal productivity of the factor will increase.
Retunes to a factor
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Y (A) TP Y (B) MPTOTAL (TP tends to increase mProduct at the increasing rate) MP tends to increase
Marginal Product O X O XUNIT OF VERIABLE FACTOR UNIT OF VERIABLE FACTOR
Increasing returns to a factor
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Under utilisation of fixed factor Increase in efficiencyBetter coordination between the
factors
Cause of increasing returns to a factor
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Constant returns to a factor occurs when additional application of the variable factor increases output only at a constant rate.
Y (A) TP Y (B) TOTALPRODUCT TP Increases at MARGINAL constant0 rate PRODUCT mp is consant MP
O X O X UNIT OF VARIABLE FACTOR UNIT OF VARIABLE FACTOR
Constant return to factor
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Optimum utilisation of the fixed factor
Ideal factor ratioMost efficient of the utilisation of
variable factor
Couse Of constant returns to a factor
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an increase amount of capital and labour applied in the cultivation of land cause , in general in a less then proportionate increase in the amount of product raised unless it happens to coincide with an improvement in the art of agriculture.
Diminishing return to a factor
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Diminishing return to factor
TP Increase at diminishing rate finally it starts declining
TOTAL PRODUCT
UNIT OF VARIABLE FACTORUNIT OF VARIABLE FACTOR
MP declines to ultimatelyBecome zero or even negative
MP
ZERO- VE
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Fixity of factor Imperfect factor substitutability Poor coordination between the
factors
CAUSE OF DIMINISHING RETURNS TO A FACTOR
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THREE STAGES OF PRODUCTION
product
product
No. of laborers
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STAGES TOTAL PRODUCT
MARGINAL PRODUCT
AVERAGE PRODUCT
1 STAGE Initially it increases at an increasing rate.Later at diminishing rate
Initially increases and reaches the maximum point. The starts decreasing
Increases and reaches at maximum point
2 STAGE Increasing at diminishing rate and reaches its maximum point
Decreases and becomes zero
After reaching its maximum beings to decreases
3 STAGE Begins to fall Become negative
Continues to diminish
THREE STAGES OF PRODUCTION
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“The term return to scale refer to the change in output as all factor change by the same proportion ”
RETURN TO SCALE
P = f[L,K]
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Increasing return to scale occur when a given percentage increase in all factor inputs cause proportionately grater increasing in output
INCREASING RETURNS TO SCALE
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y Q 252015105 0 5 10 15 20 25 x% increase in all factor inputs
Increasing returns to scale
%Increase in output
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Constant return to scale occurs when percentage increase in all factor input cause equal percentage increase in output
Constant returns to scale
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y
Constant returns to scale
% increase in all factor inputs
% IncreaseIn output
Q2010
010 2
0X
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Decreasing returns to scale occurs when given percentage increase in all factor inputs causes proportionately lesser increase in output.
DECREASING RETURNS TO SCALE
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Y % increase in output 10 5 0 5 10 15 20 25 30 X % increase in all factor inputs
DECREASING RETURNS TO SCALE
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Increasing rate to scale refer to the situation in which increasing the scale of production reduces the unit cost of production or raises output per unit of the factor inputs.
Couse of increasing return to scale
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internal economies of scale :- when a firm increases its scale of production it enjoys several economies. These economies are called internal economies.
real economies :- real economies are those which are associated with a reduction in the physical quantity of inputs raw materials various type of labour and various type of capital.
Real economies can be six type :-
Increasing return to scale
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Labour economies or specialization Technical economies or indivisibility Inventory economiesSelling or marketing economiesManagerial economiesTransport and storage economies
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External economies are those economies which are industry specific.
Economies of concentration Economies of information Economies of disintegration
External economies
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Internal economies
Difficulties of large scale management
Co-ordination Supervision Operational efficiency
Diseconomies of scale
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External diseconomies
Localisation Skilled
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Presented by :- GURMEET SINGH & GORAV CHOBEY