Production is a very important economic activity.

Countries which produces goods in large quantities are rich and those which produce little of them are poor. Factors of production Land , Labour, Capital

The Production function specifies the maximum

output that can be produced with a given quantity of inputs

Law of Variable proportions

Total Product( TP): Total product is the total output

Average product: Average product

Marginal Product: Addition made to the total production

1 2 3 4 5 6 7 8

9
10 11

100 210 330 430 520 600 670 720 750 760 740

100 105 110 107.5 104 100 95.7 90 83.3 76 67.2

100 110 120 100 90 80 70 50 30 10 -20

Change in the scale means that all factor of production are increased or decreased in the same proportion Constant Returns to scale : Constant returns to scale means that with increase in the scale in same proportion Increasing Returns to Scale :Output increases in a greater proportion than the increase in inputs Decreasing returns to scale: When output increases in an smaller proportion with an increase in all inputs

 Production

not only requires labor and land but also time. Short Run: A period in which firm can adjust Production by changing variable factors such as materials and labor but cannot change fixed factors such as capital. Long Run: The long run is a period sufficiently long that all factors including capital can be adjusted

 Internal

Economies & Diseconomies of scale Returns to scale increase in the initial stage and after remaining constant they decrease 1) Technical economies & Diseconomies: Large scale is associated with technical economies as the firm increases its scale of operations with specially capital equipment and machinery Beyond a certain point firm experiences net diseconomies of scale as further increase increase in the size will entail high long run cost