Tamilnadu Samacheer Kalvi 11th Economics Notes Chapter 3 Production Analysis Notes
→ “Production is any activity diverted to the satisfaction of other people’s wants through exchange” -J R Hicks.
→ Production is a process of using various material and immaterial inputs in order to make output for consumption.
→ Features of the Factors of Production: Factors of production means resources used in the process of production of commodities.
→ Land: In ordinary sense ‘land’ refers to the soil or the surface of the earth or ground.
→ Financial Capital means the assets needed by the firm to provide goods and services measured in term of money value.
→ An entrepreneur is a person who combines land, labour and capital in the production process to earn a profit.
→ Production Function: Production function refers to the relationship among units of the factors of production (inputs) and the resultant quantity of a good produced (output).
→ Economies of Scale: “Scale of production’ refers to the ratio of factors of production.
→ External Economies of Scale: External Economies of scale refer to changes in any factor outside the firm causing an improvement in the production process.
→ External Dis economies of scale : The term “External dis economies of scale” refers to the threat or disturbance to a firm or an industry from factor lying outside it.
→ Definition of Iso-quant : According to Ferguson, An iso-quant is a curve showing all possible combinations of inputs physically capable of producing a given level of output”.
→ Properties of Iso-quant curve:
The iso-quant curve has negative slope: If more of one factor is used, less of the other factor is needed for producing the same level of output. In the diagram combination A refers to more of capital K5and less of labour L2 As the producer moves to B, C, and D, more labour and less capital are used.
Convex to the origin: This explains the concept of diminishing Marginal Rate of Technical Substitution (MRTSLK). For example, the capital substituted by 1 unit of labour goes on decreasing when moved from top to bottom. If so, it is called diminishing MRTS. Constant MRTS (straight line ) and increasing MRTS (concave) are also possible. It depends on the nature of iso-quant curve.
→ Producer’s Equilibrium: Producer equilibrium implies the situation where producer maximizes his output. It is also known as optimum combination of the factors of production.
→ Elasticity of Supply: Elasticity of supply may be defined as the degree of responsiveness of change in supply to change in price on the part of sellers.
→ Production: An activity that transforms input into output.
→ Factors of Production: Four factors are Land, Labour, Capital and Organisation. Factor services are used in the process of production.
→ Land: All gifts of Nature.
→ Labour: Physical or mental effort of human being in the process of production.
→ Capital: Man-made material source of production.
→ Organisation: which takes decisions and bears risk.
→ Production function: Technological relationship between inputs and output.
→ Supply: The quantity of output which producers are willing and able to offer to the market at various prices.
→Elasticity of Supply: Responsiveness of the quantity supplied of a good to a change in its price.
→ Iso-quant: All the combination of two inputs which are capable of producing same level of output.
→ Iso-cost: All combination of two inputs shows that a firm can purchase with the same amount of money.
→ Short-run Production Function: Relationship between inputs and output, when there is at least one fixed factor in the production process.
→ Long-run Production Function: Relationship between inputs and output when all factors are variable.
→ Economies of Scale: A proportionate saving in costs gained by an increased level of production.