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ECONOMICS
THEORY OF PRODUCTION
The Production is the process of transforming the various inputs land, labour, capital & organization into output. Production theory speaks of the relation between inputs and outputs. Sales minus cost are profit can be minimized by increasing selling price or by reducing cost price. Selling price is fixed by the interaction of market forces viz., demand & supply. Hence the entire manager is confronted with the problem of reducing cost and thereby achieving the objectives of minimizing profit.
Production theory studies the relationship between various possible input and output combinations. The factors of production nothing but inputs of production. Factor of production mean Land, Labour, Capital & Organization (Men, Machinery, Material, Money)
OBJECTIVES OF PRODUTION:
The term firm refers to an establishment which performs all the entrepreneurial functions. With reference to a unit of production therefore it may be defined as a unit of production {enterprise}. A firm may own and manage one factory of more than one factory manufacturing the same reduction or even different products.
We already familiar with the term ‘micro’ in economic analysis it refers to the analysis of a small part of component of the whole economy such as a study pertaining to an individual consumer’s behavior or that of an individual firm are a particulars industry. It is erodent then that the study of a firm’s behavior forms. A part of analysis. Analysis of a firm may be better appreciated if we look at its objectives.
1. The owners of a firm may aim at some objectives which are non-monetary in nature. Such as personal ego. To satisfy them the firm may seek to produce goods or services even though that may not be able to gain any monetary gain.
2. It may desire to acquire economic power and therefore, enter into productive activity. This implies control on the market.
3. It may want to engage it self in some occupation and there fore may undertake producing
4. It may seek to maximize out put so that the economy grows at a desired rate
5. It may produce goods and on humanitarian grounds distribute them to the public freely or noprofit no loss basis.
PRODUCTION FUNCTION:-
Production is the result of combined efforts of the various factors-land-labour-capitals and entrepreneur production is the transformation of inputs or resources in to out put. The rate of output of any commodity functionally depends on the quantity of inputs. Used per unit of time.
The technological relationship between physical out put and physical quantities of inputs is referred to as production function. It shows the relation between quantity of output and the quantity of various inputs used in production. Here the price factor is not considered. Production is the transformation of physical inputs into physical outputs. A change in the present production technology will result in a change in the production function. An improved technology helps to produce a given out put with a less or quantity of inputs.
In algebraic from the production function may be stated as:-
P = F {L,L,C,O,M,M ……….. n}
P= Production Output
F=Functional relation
(Land,Labour,Capital,organizer,Material,Mechinary )
Production Function Assumptions:
Production function has the following assumptions:-
1) The production function is related to a particular period of time
2) There is no change in technology.
3) The procedure is using the best technique available.
4) The factors of production are divisible.
5) Production function can be fitted to a short run or to a long run.
COBB-DOUGLAS PRODUCTION FUNCTIONS:
Cobb-Douglas production function was given by Cobb and Douglas indicating production quantity to find out the relation between the physical rate of input and physical rate of output as a function of labour and capital inputs. The following formula was used relating to output in manufacturing industries from 1899 to1922.
In algebraic from the production function may be stated as:-
P = F{C, L}
Where as:
P – Production output
F- Function
C – Capital
L – Labour
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