Sunday, 23 February 2020

Production Theory


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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