2.
IN ECONOMICS TERM:
PRODUCTION MEANS A PROCESS BY WHICH
RESOURCES (MEN,MATERIAL,AND TIME ETC.) ARE
TRANSFORMED INTO A DIFFERENT NAD MORE
USEFUL COMMODITY OR SERVICE.
INPUT:
IT IS A GOOD OR SERVICE THAT GOES INTO A THE
PROCESS OF PRODUCTION.
OUTPUT:
IT IS ANY GOOD OR SERVICE THAT COMES OUT IN
PRODUCTION PROCESS.
CONCEPTOF
PRODUCTION
3.
The Long –run production function which may
also be termed as “returns to scale” describes the
maximum quantity of good or service that can
be produced by a set of inputs, assuming that the
firm is free to adjust the level of all inputs.
Mathematically it can be represent as:
Q=F(K,L)
INTRODUCTION OF
THE LONG RUN
4.
The term ‘iso-quant’ has been derived from the
GREEK word ISO means “EQUAL”
LATIN word QUANTUS means “QUANTITY ”.
An iso-quant curve shows all possible combinations
of two inputs(capital and labour) yielding the same
output ,i.e., the factors combinations are so formed
that the substitution of one factor for the other
leaves the output unaffected.
ISO –QUANT
CURVE
5. ISO- QUANT
SCHEDULE
combination Labour
(L)
Capital
(K)
Output
(Q,units)
A 1 12 200
B 2 08 200
C 3 05 200
D 4 03 200
E 5 02 200
A schedule showing
various of two inputs (say
labour and capital) at
which a producer gets
equal output is known as
iso-quant schedule.
The table depicts that all
combinations A,B,C,D and E
of labour and capital gives
2000units of output to a
producer.
6. 12
8
5
3
2
0
The slope of Iso-quant
indicates , how the
quantity of one input can
be traded off against the
quantity of other
While the OUTPUT is
held constant.
M.R.T.S = y2-y1
x2-x1
8-12 = -4 = -4
2-1 11 2 3 4 5
Q=200
X
Y
A(1,12)
B(2,8)
C(3,5)
D(4,3)
E(2,5)
X1,y1
X2,y2
7.
The term Iso-cost refers to
“EQUAL COST OF PRODUCTION”
An Iso-cost is a line showing all the combinations of
the two factors(say labour and capital) that can be
purchased for a given expenditure outlay by the
firm.
An Iso-cost denotes a particular level of total cost for
a given level of production changes,the total cost
changes and thus the iso-cost curve moves upward
and vice-versa.
9.
A
C
A
P
I
T
A
L
LABOUR
B
C
D
E
F
IN THIS ISO- COST
LINE THE
PRODUCER HAS
THREE DIFFERENT
COMBINATIONS OF
(LABOUR AND
CAPITAL).
IF THERE IS AN INCREASE IN
INPUTS THEN THE TOTAL
OUTPUT ALSO INCRESES .
BUT THE PRODUCER ALWAYS
PREFERS TO GO FOR THE
COMBINATION WHICH GIVES
HIM THE COST MINIMIZATION
1
2
3
1 4 7
10.
IN COST MINIMIZATION THE PRODUCER
ALWAYS PREFERS TO CHOOSE THE INPUT
COMBINATONS THAT MINIMIZE A FIRM’S
TOTAL COST OF PRODUCTION.
HENCE , THE COMPANY CHOOSES TO
PRODUCE AN OUTPUT WHERE A
11. combinations vehicles workers Total cost
1 6 1500 69,00,000
2 7 1400 66,50,000
3 A 8 1320 64,80,000
4 B 9 1270 64,30,000
5 C 10 1240 64,60,000
The annual cost of ONE vehicle is (1,50,000)
The annual cost of ONE worker is (4,000).
Therefore at first combination the total cost =6*1,50,000+1500*4000
(9,00,000)+(60,00,000)
The every combination is optimal than its above combination till the fourth
combination because of cost reduction .And at fifth combination there is no
cost reduction
The firm would save (1,20,000) in case of workers but it has to incur
(1,50,000) in vehicle expenses at fifth combination , which is (30,000)more
than fourth combination.
Hence , the firm would go for the fourth combination .
(15,00,000)+(49,60,000)
(13,50,000)+(50,80,000)
(12,00,000)+(52,80,000)
(10,50,000)+(56,00,000)
(9,00,000) +(60,00,000)
12. E
A B C
VEHICLES
LABOUR
K1
K0
K2
L0 L1 L2
DIFFERENT ISO-COSTS & ISO-QUANTS
CURVES SHOWS DIFFERENT LEVELS of
EXPENDITURE THAT CAN BE USED TO SHOW THE
PRICE LEVELS OF VEHICLE AND LABOUR AS
(K0 L0,K1 L1,K2 L2).
EQUILIBRIUM POINT IS REPRESENTED BY “E”
WHERE the iso-quant showing the desired output is
represented by tangent to the iso-cost.
m.r.t.s = mpl = k
mpk l
13. E
A B C
L0 L1 L2
The expansion path describes the combinations
Of labors and capital that a firm will choose to
minimize the cost ,at each output level.
It is a curve passing through the points of tangency
between the firms isoquant lines & its isoquant curves
