Ecomomics

Introduction

* Next steps after demand analysis are

* Determining level of output based on

* analysis of input -output relationship in the short run and long run (Production analysis)

* And analysis of costs and output relationship in the short run and long run (Cost analysis)

Short run Vs Long Run

* Short run is the time period where the firm cannot alter quantities of some of its inputs such as machinery, equipments and technology and output has to be increased by adding variable input like labour and raw materials

* In the Long run, No factor of production remains constant in the long run hence, all inputs are variable

* Hence, Production function is divided into

* Production function with one variable input

* Production function with two variable inputs

Production Analysis

* Production is the process by which inputs are combined, transformed, and turned into outputs.

* The production theory stresses on the efficient use of inputs for producing desired output

* Using minimum input to produce desired output

* Producing maximum output using the given input

Production function

* Production function is the technical relationship between physical input and physical output

* It is always related to a given time period

* It is related to a certain level of technology

* It depends upon relation between inputs

* Thus Production function shows maximum quantity of output than can be produced from specified set of inputs in a given period of time with a given level of technology

* Production Function-

Q= f (X1, X2…Xn)

* Here, Q is the maximum quantity of output and X1, X2…Xn are quantities of different inputs used in production

* These inputs are various factors of production used

Production Analysis in the Short run: Production function with one variable input

* The short run production function shows the maximum output the...