How can production be optimized or cost optimized? How does output respond to change in quantity of inputs? How does technology matter in reducing the cost of production? How can the least cost combination of input be achieved? Given the technology, what happens to the rate of return when more plants are added to the firm?
o ‘Production’ means a process by which resources are transformed into a different and more useful commodity or service. o Input is anything which a firm buy for use in its production & output is goods that come out of production.
o Fixed Input is one whose supply is inelastic for short-run. o Variable Input is one whose supply in the short-run is elastic. o Short-run & Long- run are the period involve in the production process.
o It state the technological relationship between input and output in the form of an equation, a table or a graph. o Q = ƒ (LB, L, K, M, T, t) LB: Land and Building, L: Labour, K: Capital, M: Raw Materials, T: Technology, t: Time
Production function with two variables Q = ƒ (L, K)
Qc = ƒ (K, L) Qc: The quantity of coal produce per unit time K : CapitalL: Labour
K L
No. of Workers(N) Total Product (TP L ) (tonnes)Marginal Product (MP L )Avg Product (AP L ) Stages of Production (Based on MP L ) (i)(ii)(iii)(iv)(v) Increasing returns Diminishing returns Negative returns
Total output (Tonnes) Labour
Marginal and Average Product