PRODUCTION

ECONOMICS
Presented by
Gopi shankar.s
 Production Economics

Production economics is the application of the principles of

microeconomics in production. Based on the theory of firm, these
principles explain various cost concepts, output response to inputs and the
use of inputs/resources to maximize profits and/ or minimize costs.
Production economics, thus provides a framework for decision making at
the level of a firm for increasing efficiency and profits.
Agricultural Production economics

It is a sub-discipline within the broad subject of agricultural

economics and is concerned with the selection of production patterns and
resource use efficiency so as to optimize the objective function of farming
community or the nation within a framework of limited resources.
Goals

1.To provide guidance to individual farmers in using their

resources most efficiently.

2. To facilitate the most efficient use of resources from the stand

point of economy.
Objectives
1. To determine and outline the conditions that give the optimum
use of capital, labour, land and management resources in the
production of crops, livestock and allied enterprises.

2. To determine the extent to which the existing use of resources

deviates from the optimum use.

3. To analyse the forces which condition the existing production

pattern and resource use.

4. To explain the means and methods in getting from the existing

use to optimum use of resources.
 Nature/Subject matter

◦ Agricultural production economics is concerned with the

productivity of farm inputs.
Resource allocation
Resource combinations
Resource use efficiency
Resource management and
Resource administration
◦ Agricultural production economics involves analysis of production relationships
and principles of rational decision making to optimize the use of farm resources on
individual farms as well as to rationalize the use of farm inputs.

◦ The subject matter of agricultural production economics involves the study of

factor-product, factor-factor and product-product relationships, the size of the
farm, returns to scale, credit and risk and uncertainty, etc.
Nature of agricultural production economics

Factor shares

The study of relative income shares of different factors of production

particularly those of labour and capital, is of great interest to the production
economist in agriculture and industry.

Returns to scale

Returns to scale deals with what happens when all the factors of
production are increased simultaneously .
Factor substitution

The degree of substitutability between the factors of production keeps

on changing overtime. It determines whether the process of agricultural
growth is neutral or non-neutral, depending on whether the substitution rates
between the factors remain unchanged or changed.

Factor shares and returns to scale

The behaviour of factor shares depends on the change in the returns of the
scale. As factor shares increases there is also an increase in returns to scale.
Technical change
There are two types of technical change
1.Embodied technical change and
2.Disembodied technical change
Embodied type
Increases in productivity due to change in the form of capital goods in use are
called as embodied type of technical change.
Disembodied type
Important changes may occur through innovations in the organization of
production that are not embodied in the form of capital goods this is called as
disembodied type of technical change
 Basic Production Problems

◦ What to produce?
◦ How to produce?
◦ How much to produce?
◦ When to buy and sell?
◦ Where to buy and sell?
 Scope
◦ Working out the optimum quantities of land, labour, capital and
management inputs for the production of various crop and livestock
enterprise.

◦ Indicate the profitable course of action to be taken by the producers.

◦ Studying the existing allocation pattern of various agricultural resources

within and between different enterprises and examining the variation in
their existing and optimal levels.
◦ Devising appropriate methods for bridging the gaps between the
existence and optimum resource use pattern in the agricultural sector
of an economy.

◦ Able to provide the producer with information which would be useful

in his decision regarding the resource use.

◦ Can get great returns of the resource use.

 Importance
1. The main important of agricultural production economics is the
maximizing profits through the returns from the sale of crops

2. Decisions have been made with regard to what commodity or

commodities are to be produced

3. Decide how available resources are to be allocated among

outputs.

4. Making an assumption about risk and uncertainty.

Thank You…