Tuesday, 5 November 2019

Unit 6: Production Theory


                                                        Unit 6: Production Theory  

Production means conversion of inputs or resources into usable commodities or services.

Inputs are the resources used in the production of goods and services and are generally classified into three broad categories — labour, capital and land or natural resources.

Production is a process in which economic resources or inputs are combined by entrepreneurs to create economic goods and services.

An expansion path is formally defined as the set of combinations of capital and labour that meet the efficiency condition.

Isoquants are a geometric representation of the production function.

Various combinations of factor inputs can produce the same level of output.

The marginal rate of technical substitution of L for K (denoted by MRTSL,K) is defined as the number of units of input K that a producer is willing to sacrifice for an additional unit for L so as to maintain the same level of output      Isoquants: These are a geometric representation of the production function  Kinked isoquant: This assumes limited substitutability of capital and labour.

Marginal revenue product of labour: Marginal product of labour times the marginal revenue from the sale of extra output produced  Production function: A function that states the maximum amount of an output that can be produced with a certain combination of inputs, within a given period of time and with a given level of technology  Production: Transformation of inputs into output    

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