The theory of production provides tools and techniques to analyze production conditions, techniques for determining cost efficient production and input rates considering one variable input and then for two variable inputs. and helps in the solution of practical business issues.
BASIC CONCEPTS:First, some basic concepts of production are discussed.
Production: The term ‘production’ refers to a process by which inputs are transformed into an output. It includes an activity that creates utility or adds value that the consumer could have derived from the inputs. This transformation process can be of 3 dimensions: change in form, space and time. In manufacturing raw material is changed into finished goods, in transportation, a commodity is made available where it is demanded, storage increases the value of goods by making them available when it is wanted involving time dimension.
Input and Output: An input is simply anything which the firm buys for use in its production or other process for sale. The production process requires a variety of inputs depending upon the nature of product. Generally the inputs have been classified as (i) Land, (ii) Labor, (iii) Capital, (iv) Raw- material and (v) Time. An output includes all commodities that the firm processes or produces for sale. Inputs are distinguished as (a) Fixed Inputs and (b) Variable Inputs.
BASIC CONCEPTS:First, some basic concepts of production are discussed.
Production: The term ‘production’ refers to a process by which inputs are transformed into an output. It includes an activity that creates utility or adds value that the consumer could have derived from the inputs. This transformation process can be of 3 dimensions: change in form, space and time. In manufacturing raw material is changed into finished goods, in transportation, a commodity is made available where it is demanded, storage increases the value of goods by making them available when it is wanted involving time dimension.
Input and Output: An input is simply anything which the firm buys for use in its production or other process for sale. The production process requires a variety of inputs depending upon the nature of product. Generally the inputs have been classified as (i) Land, (ii) Labor, (iii) Capital, (iv) Raw- material and (v) Time. An output includes all commodities that the firm processes or produces for sale. Inputs are distinguished as (a) Fixed Inputs and (b) Variable Inputs.
Fixed Input and Variable Input: A fixed input is defined as one whose quantity cannot readily be changed when market conditions indicate that an immediate change in output is desirable. In other words, a fixed input is one whose supply cannot be expanded in the short run. A variable input, on the other hand, is one whose quantity may be changed almost instantaneously in response to desired changes in output. Its supply is elastic in the short run.
Short Run and Long Run: Short run refers to that period of time in which the input of one or more productive agents is fixed. In the short run production of a commodity can be expanded by varying the use of only variable inputs like labor. Long run is defined as the period of time in which all inputs are variable but not long enough to permit a change in technology. In the long run, varying both variable and fixed inputs can vary in the production of a commodity. In the long run all inputs are variable.
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