1BSA-ABM2

PRODUCTION
ANALYSIS
Group Work
Week 7
 OBJECTIVE

The Learners are expected to:

• Describe the Concept Of Production • Elaborate short-run function

• Elaborate the factors of Production

• Discuss Production function

• Explain production possibility curve

 PRODUCTION ANALYSIS
Reporters

A Alyzza Jeane Delima

B Izayne Speed Redoña

C Harvey Pumbayabaya
 The Concept of Production

Production - A process of converting inputs into output is termed as

production:
-Input
-Output
Production as defined by the two economists:
James Bates and J.R. Parkinson - J.R. Hicks
 Factors of Production

-Labor
-Land
-Capital
-Enterprise
 Cobb Douglas Production Function

Refers to the functional relationship, under the given technology, between

physical rates of input of a certain firm per unit of time.
 Cobb Douglas Production Function

A way of calculating what comes out of production to what has gone into it. Q
= ALᵅ * Kᵝ
Q = Total Output
L = Labor
K = Capital
ᵅ and ᵝ = Positive Constants
A = Efficiency Parameter
 The Law Of Diminishing Returns

Law of Diminishing - Returns is the total

output initially increases with an increase in
variable input at the given quantity of fixed
inputs, but it starts decreasing after a point of
time.
Diminishing Marginal Returns happen because the factors of production are
ultimately not perfectly substitutable.

Intuitively as well, hiring too many units of variable inputs for the given fixed
inputs ultimately results in inefficiencies in production. As they often say, too many
cooks spoil the broth.
 Significance of Law of Diminishing Return

The law of diminishing returns is significant

because it is part of the basis for economists'
expectations that a firm's short-run marginal
cost curves will slope upward as the number of
units of output increases.
 Understanding the diminishing return to scale

When the proportionate change in output is less than the proportionate

change in input, this is referred to as a situation where the proportionate
change in output is less than the proportionate change in input.
Understanding the diminishing return to scale
 Different froms of isoquants

-Linear Isoquant:
This curve shows the perfect
substitutability between the factors
of production.
 Different froms of isoquants

-Kinked Isoquant:
This curve assumes that the factors of
production are only partially
replaceable. Because there are only a
few procedures to create any product,
replacement of factors may be noticed
at the curves.
 Different froms of isoquants

-L shaped Isoquant:
This is one of the types of iso-
quant curves, where there is a strict
complementarity with no
substitution between the factors of
production
 Iso-cost Line

An isocost line shows various

combinations of inputs that cost
the same total amount.
 Iso-cost Line

Mathematically, an isocost line can be expressed as

C = (W x L) + (r x K)

C = cost of production
w = price of labor
L = units of labor
r = price of capital
K = units of capital
 Expansion Path

The expansion path gives you the least cost of

input combinations for every level of output.
The expansion path is so-called because if the
firm decides to expand its operations, it would
have to move along this path.
 Territorial Division of Labor

Localizations of industries mean concentration of most of the firms engaged in

producing the same type of commodity in a particular region
 Territorial Division of Labor

Causes of Localization:

• Climatic Conditions
• Nearness to Raw Materials

• Nearness to Sources of power

 Territorial Division of Labor

Advantages: Disadvantages:

• Reputation • Dependence

• Skilled Labour • Limited Employment

• Economy Gains • Social Problems

 1BSA-ABM2

THANK
YOU
Group Work
Week 7