Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Production Function Production Function States the relationship between inputs and outputs Inputs – the factors of production classified as: Land – all natural resources of the earth – not just ‘terra firma’! Price paid to acquire land = Rent Labour – all physical and mental human effort involved in production Price paid to labour = Wages Capital – buildings, machinery and equipment not used for its own sake but for the contribution it makes to production Price paid for capital = Interest Production Function Inputs Process Land Labour Capital Product or service generated – value added Output Production Function Production function is the technical relationship between the output of a commodity and the input factors required to produce that commodity Production involves transformation of inputs such as capital, equipment, labor, and land into output - goods and services In this production process, the manager is concerned with efficiency in the use of the inputs - technical vs. economical efficiency Production Theory Production is the process through which one can change a given good or commodity from its current status of non-final consumable good to a finished product or good, using technology and other input factors Analysis of Production Function: Short Run In the short run at least one factor fixed in supply but all other factors capable of being changed Reflects ways in which firms respond to changes in output (demand) Can increase or decrease output using more or less of some factors but some likely to be easier to change than others Increase in total capacity only possible in the long run Relationship Between Total, Average, and Marginal Product: Short-Run Analysis Total Product (TP) = total quantity of output Average Product (AP) = total product per total input Marginal Product (MP) = change in quantity when one additional unit of input used Total, marginal and Average Product Short-Run Analysis of Total, Average, and Marginal Product If MP > AP then AP is rising If MP < AP then AP is falling MP = AP when AP is maximized TP maximized when MP = 0 Law of Diminishing Returns (Diminishing Marginal Product) Holding all factors constant except one, the law of diminishing returns says that: As additional units of a variable input are combined with a fixed input, at some point the additional output (i.e., marginal product) starts to diminish e.g. trying to increase labor input without also increasing capital will bring diminishing returns Nothing says when diminishing returns will start to take effect, only that it will happen at some point All inputs added to the production process are exactly the same in individual productivity Three Stages of Production in Short Run AP,MP Stage I Stage II Stage III APX Fixed input grossly underutilized; specialization and teamwork cause AP to increase when additional X is used MPX Specialization and teamwork continue to result in greater output when additional X is used; fixed input being properly utilized Fixed input capacity is reached; additional X causes output to fall X Production Intensity The production intensity is measured by the ratio of labor parameter α to capital parameter β or (α/ β). The lower the ratio, the more capital intensive is the output and vice versa