tailieunhanh - Lecture Managerial economics: Chapter 7 - Dr. Hasnain Naqvi

An entrepreneur must put together resources: land, labour, capital - and produce. A product people will be willing and able to purchase. In this chapter provides knowledge of production. | PRODUCTION 1 Production An entrepreneur must put together resources -- land, labour, capital -- and produce a product people will be willing and able to purchase 2 PRODUCTION FUNCTION The relationship between the amount of input required and the amount of output that can be obtained is called the production function What can you say about Marginal Product ? As the quantity of a variable input (labour, in the example) increases while all other inputs are fixed, output rises. Initially, output will rise more and more rapidly, but eventually it will slow down and perhaps even decline. This is called the LAW OF DIMINISHING MARGINAL RETURNS 12 LAW OF DIMINISHING RETURNS It holds that we will get less & less extra output when we add additional doses of an input while holding other inputs fixed. it is also known as law of variable proportions. COMBINING RESOURCES There are many combinations of resources that could be used Consider the following table showing different number of . | PRODUCTION 1 Production An entrepreneur must put together resources -- land, labour, capital -- and produce a product people will be willing and able to purchase 2 PRODUCTION FUNCTION The relationship between the amount of input required and the amount of output that can be obtained is called the production function What can you say about Marginal Product ? As the quantity of a variable input (labour, in the example) increases while all other inputs are fixed, output rises. Initially, output will rise more and more rapidly, but eventually it will slow down and perhaps even decline. This is called the LAW OF DIMINISHING MARGINAL RETURNS 12 LAW OF DIMINISHING RETURNS It holds that we will get less & less extra output when we add additional doses of an input while holding other inputs fixed. it is also known as law of variable proportions. COMBINING RESOURCES There are many combinations of resources that could be used Consider the following table showing different number of mechanics and amount of capital that the hypothetical firm, india inc., might use 3 ALTERNATIVE QUANTITIES OF OUTPUT THAT CAN BE PRODUCED BY DIFFERENT COMBINATIONS OF RESOURCES 4 PRODUCTION IN THE SHORT RUN The short run is a period just short enough that at least one resource (input-industrial plant,machines) cannot be changed -- is fixed or inelastic. thus in the short run proudction of a commodity can be increased by increasing the use of only variable inputs like labour and raw materials. 5 Quantities of Output that Can Be Produced When One Resource is Fixed 6 LONG RUN The long run is a period suffieciently long that all factors including capital can be adjusted or are variable. This means that the firm can choose any combination on the manufacturing table -- not just those along column labelled “10” 31 The Long Run or Planning Period: As we double both resources, what happens to output? 32 THREE STAGES OF PRODUCTION No. of workers (N) Total product – TPL .