THEORY OF PRODUCTION AND COST DOC

Title	THEORY OF PRODUCTION AND COST
Author	D. Parambil
Pages	23
File Size	1021.5 KB
File Type	DOC
Total Downloads	286
Total Views	502

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CHAPTER 4: PRODUCTION ANALYSIS Introduction Production is basically an activity of transformation, which connects factor inputs and outputs. A farm uses land, labor and seeds as the basic inputs to transform them into corn. An input is defined as any good or service which contributes to the production of an output. An entrepreneur normally will use many different inputs for the production of an output. Some of these inputs may be outputs of other firms. For example, steel is an input for an automobile producer and an output for the steel producer. PRODUCTION Production is the organized activity of transforming resources into finished products. The objective of production is to satisfy the demand of such transformed resources. It is the creation of utility, not the creation of matter. The process of transforming inputs into output can be any of the following kinds: Change in the form: raw materials transformed to finished goods. Example: iron into machine Change in place: 1) extraction from earth and 2) transportation of goods Change in time: making available materials at times when they are not normally available. Example: Storage Making use of personal skills The fundamental purpose of all these activities is creation of utility. So, production is creation of from utility, place utility, time utility and personal utility. PRODUCTION FUNCTION: The production function represents the relationship between physical inputs and physical output. The relationship can be expressed in the form of a table, a graph, or mathematical equation. The quantitative relationship between physical inputs and physical output is technically known as production function. 1...