production function
DESCRIPTION
its use full to students of managementTRANSCRIPT
PPRODUCTIONRODUCTION F FUNCTIONUNCTION TTYPEYPE OOFF PPRODUCTION RODUCTION
FFUNCTION UNCTION
1. L1. LINEAR INEAR OOR R HHOMOGENEOUSOMOGENEOUS
2. N2. NONON L LINEARINEAR O ORR H HOMOGENEOUSOMOGENEOUS
3. S3. SHORTHORT R RUNUN P PRODUCTIONRODUCTION F FUNCTIONUNCTION
4. L4. LONGONG R RUN UN PPRODUCTIONRODUCTION F FUNCTIONUNCTION
TTWO WO AASPECTS OF SPECTS OF PPRODUCTION:RODUCTION:
1. COST ANALYSIS1. COST ANALYSIS
2. REVENUE ANALYSIS2. REVENUE ANALYSIS
COST ANALTSISCOST ANALTSIS
1.1. SHORT RUN COSTSHORT RUN COST
FIXED FACTORSFIXED FACTORS VARIABLE FACTORSVARIABLE FACTORS
2. LONG RUN COST2. LONG RUN COST
TYPE OF COST IN SHORT TYPE OF COST IN SHORT PERIODPERIOD
1.1. FIXED COSTFIXED COST FIXED COST CAN NEVER ZEROFIXED COST CAN NEVER ZERO TFC REMAIN FIXEDTFC REMAIN FIXED AFC WILL GO ON DIMINISHINGAFC WILL GO ON DIMINISHING
AFC=TFC/OUTPUT
GRAPHICAL REPRESENTATIONGRAPHICAL REPRESENTATION
UNITUNIT TFCTFC AFCAFC
00
11
22
33
44
55
100100
100100
100100
100100
100100
100100
__
100100
5050
3333
2525
2020
100
80
70
60
40
20
1 2 3 4 50
TFC
AFC
UNIT
TFCAFC
VARIABLE COSTVARIABLE COST VARIABLE COST CAN BE ZEROVARIABLE COST CAN BE ZERO TVC INCREASES OR DECREASESTVC INCREASES OR DECREASES AVC DIMINISHING UPTO A POINT THEN AVC DIMINISHING UPTO A POINT THEN
INCREASINGINCREASING
AVC=TVC/OUTPUT
GRAPHICAL REPRESENTATIONGRAPHICAL REPRESENTATION
UNITUNIT
11
22
33
44
55
66
77
TVC1TVC100
1010
1515
2424
2525
3030
4242
5656
AVCAVC
1010
99
88
77
66
77
8810
20
30
40
50
60
0 1 2 3 4 5 6 7
TVC
AVC
WHY AC IS U-SHAPED?WHY AC IS U-SHAPED?
At first AFC or AVC falls, At first AFC or AVC falls, as a result AC also falls. as a result AC also falls. After a point AFC start After a point AFC start falling at low rate,whereas falling at low rate,whereas AVC start rising at a AVC start rising at a greater rate. As a result greater rate. As a result AC start rising,it become AC start rising,it become U-Shaped.U-Shaped.
AC=AFC+AVC
UNIT
AC
RREVENUE EVENUE AANALYSISNALYSIS
REVENUE ANALYSIS
TOTAL REVENUE AVERAGE REVENUE MARGINAL REVENUE