5.1 5.2 Introduction Objectives Meaning of production and production function 5.2.1 Uses of production function 5.2.2 Production function with one variables input case 5.2.3 Production function with two variable input 5.2.4 Long run production function 5.2.5 Economies of scale 5.2.6 Diseconomies of scale 5.2.7 Internalisation of external economies 5.2.8 Externalisation of internal diseconomies 5.2.9 Economies of scope 5.2.10 Diseconomies of scope Self Assessment Questions 1 5.3 Cost of production 5.3.1 Managerial uses of cost analysis 5.3.2 Different kinds of cost concepts 5.3.3 Determinants of costs 5.3.4 Costoutput relationship
5.3.5 Costoutput relationship and cost curves in the short run 5.3.6 Costout relationship in the long run Self Assessment Question 2 5.4 Summary Terminal Questions Answer to SAQ’s and TQ’s
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A business firm is an economic unit. It is also called as a production unit. Production is one of the most important activities of a firm in the circle of economic activity. The main objective of production is to satisfy the demand for different kinds of goods and services of the community. Learning Objectives: After studying this unit, you should be able to understand the following 1. Understand the concept of production, production function and its managerial uses. 2. Analyze short term and long term production function with illustrations. 3. Describe the various dimensions, advantages and demerits of large scale production. 4. Understand the benefits of joint production of one firm rather if it were to be produced by two different firms. 5. Meaning, different cost concepts and managerial uses of cost of production 6. Understand short run and long run costoutput relationships.
5.2. Meaning Of Production And Production Function
The concept of production can be represented in the following manner.
Entry into Firms
Exit of Firms
The term “Production” means transformation of physical “Inputs” into physical “Outputs”. The term “Inputs” refers to all those things or items which are required by the firm to produce a particular product. Four factors of production are land, labor, capital and organization. In addition to four factors of production, inputs also include other items like raw materials of all kinds, power, fuel, water, technology, time and services like transport and communications, warehousing, marketing, banking, shipping and Insurance etc. It also includes the ability, talents, capacities, Sikkim Manipal University
knowledge, experience, wisdom of human beings. Thus, the term inputs have a wider meaning in economics. What we get at the end of productive process is called as “Outputs”. In short, “Outputs” refer to finished products. Production always results in either creation of new utilities or addition of values. It is an activity that increases consumer satiability of goods and services. Production is undertaken by producers and basically it depends on cost of production. Production analysis is always made in physical terms and it shows the relationship between physical inputs and physical outputs. It is to be noted that higher levels of production is an index of progress and growth of an organization and that of a society. It leads to higher income, employment and economic prosperity. Production of different types of goods and services in different nations indicates the nature of economic inter dependence between different nations. PRODUCTION FUNCTION The entire theory of production centre round the ...