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6 Theory of Production
Microeconomics All Rights Reserved
© Oxford University Press Malaysia, 2008
6– 2
DEFINITION OF PRODUCTION
Production is the process of transforming inputs into
outputs.
INPUTS
OUTPUTS
Input refers to
Refers to what we
the factors of
Processing get at the end of
production
the production
that a firm uses in
process, that is,
the production
finished products.
process
CLASSIFICATION
OF FACTORS ENTREPRENEUR
OF PRODUCTION A person who combines
CAPITAL the different factors of
Part of man-made production, and initiates
wealth used for further the process of
production production and also
bears the risk
MP = TP/ L
STAGES OF PRODUCTION
Stage III
• Proportion of fixed factors is lower than
• variable factors.
• Increase in variable factors decline TP because overcrowding.
• A producer would not like to operate at this stage.
40
30 TP
MP
20
APMAX; AP
AP=MP
10
MP= 0
0
0 1 2 3 4 5 6 7 8 9 10
-10
3
2 Output
1
0
1 2 3 5
Labour
3
2 Q = 800
1
0 Q = 600
1 2 3 4 5