liCOMCOMP APPL/TANATON) SEMV

IBUSINESS LO UNOMN

MI'ndenotesthe MapinalPodue om wng n"mit of the vtble tacclor

|l, denows loal oduet honn t o the vaiable factor
P,deoes lotal Poduct on(0 D unit othc variable lactor
|Labour uNed as a \arable |Total P'roduct/ ouput Marginal l'rodue (in
nput(n nits) (in nits) units)

8 8-5 3
I5-8 7
12-|5 -3
|0-12 -2

Average Il'roduction: The aVerape produetion is the lotal

variable lactor emploved to produce the output. product divided by the amount of
It relers lo the output per unit ofh vuriable
AP TTP|
lictor, I| cun be culculated as:
llere.
AP denotes Averape Produet
IP denotes Total lProduet
I denotes the units of the
Variable lactor
lorxample. | the total product is 50 units when 10 units ofLabour are uscd, then:
AP S0/10 Sunits of output
Labour used as avariable Total P'roduct/ output
input (in units Average Product (in
(in units) units)
5/| 5
2 8
8/2 6
)
9/3 3
8/4 2
5
5/5 I

3Q: Write about theory of produetion in short run and long

function?
runwith production

Introduetion: In
ccononics, n ellort to explain the principles by which a business irm
decides how much of its product (Output)that it produees for sale. 'or this to happen,
shoulddecide how much of labor, raw material, cupital inputs that it employ lor business
Definition of Produetion: Aceording to Bates and Parkinson: *Production is the
oulput.
oreapized iactivity of' translorming resources into finished products in the form of goods and
services: the objcclive ol production is lo satisly the demand tor such transtormed
resourCes",
 RCOMOMP APPL/TAXATION) - SEM V BUSINESS ECONOMICS

Theorsof Production Subjcct Matter: Afirnn's objcctive is profit maximization. Uin the
short run.
its total output remains fixed. However, the only way o increase the output
moderatcl and;to maximizcd profit is to minimize the cost.
\arious decisions a business enterprise makes about its productive activities can be
Ihe
classilicdinto threc layers.
output with
Laver: Thisiincludes about the methods of producing a given quantity of the
available Inputs (factors of production)
the
gnd Javer: It
is the method of increasing noderate output by keeping one factor input as
production - profit maximization
rariable (labor) and remaining 3factors constant (short run This
Laver: It determines the most profitable by increasing Output or the size ofthe firm.
3rd factor or by kceping all the
be achieved cither by keeping more than one input as variable
is called as Long-run product
oiher factor inputs as variable (it relates to what that
maximization)
differences between these two time periods is
Short run and Long run Production: The
variable factors.
based on the differences between fixed and
which one of the three factors ol
Short Run Production: Itrefers to the period of time over
capital. land and entrepreneur as
nroduction are fixcd. Keeping three factors constant such as
ixed and labor as variable fact or to produce a given amount of output.
function are:
Thekey terms associated with short-run production
is produced using different quantities of
1. Total Product: It is thc amount of output that
input
Marginal Product: It is defined as the change in the total product per unit change in
2.
a variable input(Labor)
MPL = ATP/AL

Where MPL - Marginal Product of Labor

ATP Change in Total Product
AL -Change in Labor Input
Produet: It is defined as the total product per unit of variable input (Labor)
3. Average
AP=1TP/L
Where AP =Average Product
TP= Total Product
L=Units of Labor

detined as the period over which all the factors of production can be varied.
Long Run: I is
long run period, firms desire to expand its
Ninthe Iims existing technology. During this
more capital and labor to produce maximum output to
business operations by increasing
achieve maximum profits.
Long Run Cost = Long Run Variable Cost
decisions are to be taken by management for
Hence. in proper planning and
the long run
the scale of operations through variable factors of
product inputs.
increasing The relationship between inputs and outputs is
explained as how a producer
Conclusion:
choses and combines factors of production (inputs) by keeping them certain times as fixed
and maximum profits
and one short run. However, for maximum output
factor as variable in
and to expand his business operations in the long run, he keeps all factors as variable.

57
SIVA SV ANI DEGREE COLLEGE