EXACTVIEW

TRAINING
COURSE TITLE: PRODUCTION ECONOMICS
COURSE CODE: ECN 425

LECTURE BY: Mr. Muyideen

BASIC PRODUCTION CONCEPTS
 Production & Production Function
 Variable & Fixed Factors
 Long Run & Short Run
 Endogenous & Exogenous Variables
 Necessary & Sufficient Conditions
 PRODUCTION & PRODUCTION ECONOMICS
Production is the process of combining and coordinating two or more materials and forces
(inputs, factors, resources or productive services) in the creation of some goods and
services, outputs and products. Thus, it is simply the transformation of inputs into
output/service that provides utility. In short, production is the creation of utility.
•A   production function is different from production. A production function is a
quantitative and mathematical description of the various technical production
possibilities faced by a firm. The production function relates the maximum output in
physical term to alternative level of inputs in physical term.
For example, we present below the popular cobb-douglas production function
 VARIABLE & FIXED FACTORS

•Variable
  factors are factors of production, the level of which may be augmented or diminished given the
decision choice domain, fixed factors therefore are factors whose level will not be altered.
For example: Given Q

: Labour is variable while capital is fixed.

….. ( 3) : Both factor inputs vary.
 Long Run & Short Run

  The long run is a production period in which all n factors are considered variable.
Whereas the short run is a production period where at most n-1 factors are
considered to be variable.
 Simply put, in the short run at least one factor input (physical factor) is fixed whereas
in the long run, all factor inputs (physical factors) vary.
Consider the following production functions -
(SR)
: Labour is variable while capital is fixed. (SR)
….. ( 3) : Both factor inputs vary. (LR)
 Endogenous & Exogenous Variables

   endogenous variable is a variable whose solution value is a product or outcome of the model. In contrast, an
An
exogenous variable is a variable whose value is determined outside the model.
 For example:

 Subj, to:
 E
 NECESSARY & SUFFICIENT CONDITIONS
–A necessary
  condition is a circumstance, the absence of which precludes a particular event or
outcome. On the other hand, a sufficient condition is a circumstance, the presence of which
ensures the event.
For example:
Becoming a final-year student in any university is a necessary but not sufficient condition for
being a graduate. (Some final-year students are unable to graduate)
Scoring 90% in DLI exam is a sufficient but not necessary condition for having an A. (Since any
other score from 70% to 89% could earn same A grade)
Likewise, in Production Economics, equimarginal principles such as

are necessary but not sufficient for revenue. profit & output maximization (or loss & cost
minimization as the case may be)