PAPER CODE CH CGE2 PRINCIPLES OF ECONOMICS KALIYAGANJ COLLEGE 2020 PRINCIPLES OF ECONOMICS THEORY OF PRODUCTION NAME OF TEACHER DR CHANDAN ROY ASSOCIATE PROFESSOR 9932395130 chandanroy70gmailcom ID: 1027708
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1. SEMESTER-IIB.COM GENERALPAPER CODE CH CGE2PRINCIPLES OF ECONOMICSKALIYAGANJ COLLEGE2020
2. PRINCIPLES OF ECONOMICSTHEORY OF PRODUCTIONNAME OF TEACHER: DR. CHANDAN ROYASSOCIATE PROFESSOR 9932395130chandanroy70@gmail.com
3. Production FunctionProduction Function shows technological relationship between Input (L, K) and Output (Q).It also shows the maximum output which can be produced by using alternative combinations of capital and labour.Production Function Q = f (K, L)Output refers to the number of units of the commodity producedLabour refers to the number of labourers employed
4. Production FunctionCapital refers to the number of capital equipment employedWe assume all units of L and k are homogeneous and identicalTechnology is assumed to remain constant during the period of analysis.
5. Short Run Vs Long RunShort Run : It refers to that period of time when at least of the factors of the production function remains constant So it does not correspond to a specific number of months or years.Long Run: It refers to that period of time when all the inputs of the production functions are variable.
6. Short Run Production FunctionQ = f (L, K) is a short run production function.Where, Capital (K) is a fixed factorLabour (L) is variable factorTP : Total product which is produced during a given period of timeTotal product will change as more of the variable factor (L) is being used give fixed factorAPL = TP/L, Average amount of output produced by using total variable labour forceMPL = ∆TP/∆L, Change in TP resulting from an use of additional unit of labour
7. The Law of Variable ProportionsThis law exhibits short-run production functions in which one factor varies while the others are fixed.The law states that keeping other factors constant,(say, capital) when we increase the variable factor (labour), TP initially increases at an increasing rate, then increases at a diminishing rate, and eventually starts declining.
8. Law of Variable Proportions
9. Stages of Prodction1st Stage: When TP increases at an increasing rate and MPL > APL. A producer does not operate in Stage I, as he can employ more units of L to efficiently utilize the fixed factors. So he will expand further.2nd Stage : When TP increases at a diminishing rate and APL > MPL , This stage is the most relevant stage of operation for a producer according to the law of variable proportions.3rd Stage : When TP starts declining and MPL<0. This is uneconomic zone and producer will not operate in this stage.
10. Concept of IsoquantAn isoquant is a set of input combinations that can be used to produce a given level of output.In a single isoquant the output level is constant.In the adjacent diagram, A, B, C, D represent different combinations of L & K to produce Q=100 unit.Higher isoquant represent higher level of output.Slope of Isoquant (MRTSK,L =MPL/MPk
11. Concept of IsocostIsocost line shows the cost outlay of producerIt shows the combinations of inputs which cost the same total amount of outputEquation of Isocost line is:rK + wL = CSlope of Iscost= w/r
12. Optimal Employment of InputsOptimal combination of Inputs will be at a point where, Slope of Isoquant = Slope of IsocostMRTSK,L = w/rThe isoquant is convex to the origin at the point of tangency.
13. Ridge LinesFirm produces in those segments where isoquants are convex to the origin and lie between the ridge lines.Ridge Lines are locus of points where MP of inputs are Zero.In upper ridge line, MPk=0In lower ridge line, MPL=0Production techniques are efficient only inside the ridgelines.
14. Output Expansion PathOutput Expansion Path is a line connecting optimal input combinations as the scale of production expands.It reflects least cost methods of producing different levels of outputAt any point of Expansion Path, MPL /MPK = w/r
15. Homogeneous Production FunctionA production function is said to be homogeneous of degree n if λn Q= f(λL, λK)If n=1, the homogeneous production function exhibits Constant returns to Scale
16. Homogeneous Production FunctionIf n > 1, the homogeneous production function shows Increasing Returns to ScaleIf n<1, the production function shows Decreasing Returns to ScaleIn case of Homogeneous Production Function, the output expansion path is always linear.
17. Dr. chandan roy9932395130associate professorkaliyaganj collegeTOPIC TAUGHT BY