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- 2. 2 LESSON OUTLINE 1. Concept of Production 2.Factors of Production 3. Production Function 4. Business Organizations
- 3. ESSENTIAL QUESTION: HOW DOVARIOUS PRODUCTION FACTORS INFLUENCE AN ECONOMY'S EFFICIENCY AND OUTPUT?
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- 5. 5 PRODUCTIO N • In economics,Production is a process of transforming tangible and intangible inputs into goods or services. • Raw materials, land, labor, and capital are the tangible inputs, whereas ideas, information, and knowledge are the intangible inputs. These inputs are also known as factors of production.
- 6. 6 PRODUCTION IN ECONOMICS CANBE DEFINED AS AN ORGANIZED ACTIVITY OF TRANSFORMING PHYSICAL INPUTS (RESOURCES) INTO OUTPUTS (FINISHED PRODUCTS), WHICH WILL SATISFY THE PRODUCTS’ NEEDS OF THE SOCIETY. - JAMES BATES AND J.R. PARKINSON
- 7. 7 PRODUCTION IN ECONOMICSIS AN ACTIVITY WHETHER PHYSICAL OR MENTAL, WHICH IS DIRECTED TO THE SATISFACTION OF OTHER PEOPLE’S WANTS THROUGH EXCHANGE. - J.R. HICKS
- 8. WHAT IS THEPRODUCTION POSSIBILITY FRONTIER (PPF)? • The production possibility frontier (PPF) is a curve on a graph that illustrates the possible quantities that can be produced of two products if both depend upon the same finite resource for their • The PPF is also referred to as the production possibility curve (PPC). • PPF also plays a crucial role in economics. For example, it can demonstrate that a nation’s economy has reached the highest level of efficiency 8
- 9. 9 UNDERSTANDING THE PRODUCTIONPOSSIBILITY FRONTIER (PPF) The PPF is the area on a graph representing production levels that cannot be obtained given the available resources; the curve represents optimal levels. Here are the assumptions involved: •A company/economy wants to produce two products. •There are limited resources. •Technology and techniques remain constant. •All resources are fully and efficiently used.
- 10. 10 ABOUT US Your abilityto communicate effectively will leave a lasting impact on your audience Effectively communicating involves not only delivering a message but also resonating with the experiences, values, and emotions of those listening
- 11. 11 PRODUCTION POSSIBILITY FRONTIER (PPF) ON ANATIONAL SCALE Imagine a national economy that can produce only two things: wine and cotton. If points A, B, and C are plotted on a curve, it represents the economy’s most efficient use of
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- 13. 13 FACTORS OF PRODUCTION • Factorsof Production in Economics are the inputs that are used for producing the final output with the main aim of earning an economic profit. • Land, labor, capital, and entrepreneurship are the main factors of production. Each and every factor is important and plays a distinctive role in the organization.
- 14. 14 Land • Land isthe gift of nature and includes the dry surface of the earth and the natural resources on or under the earth’s surface, such as forests, rivers, sunlight, etc.
- 15. 15 Characteristics which would qualify agiven factor to be called land • Land is a free gift of nature • Land is a free gift of nature • Land is permanent and has indestructible powers • Land is a passive factor • Land is immobile • Land has multiple uses • Land is heterogeneous
- 16. 16 Labor • Labor isthe physical and mental efforts of human beings that undertake the production process. • It includes unskilled, semi-skilled, and highly skilled labor. The supply of labor is affected by the change in its prices. It increases with an increase in wages. The return for labor is called wages and salary.
- 17. 17 Characteristics of labor: • HumanEffort • Labor is perishable • Labor is an active factor • Labor is inseparable from the laborer • Labor power differs from laborer to laborer • All labor may not be productive • Labor has poor bargaining power • Labor is mobile • There is no rapid adjustment of the supply of labor to the demand for it • Choice between hours of labor and hours of
- 18. 18 Capital • Capital isthe wealth created by human beings. It is one of the important factor of production of any kind of goods and services, as production cannot take place without the involvement of capital.
- 19. 19 Capital Physical capital includestangible resources, such as buildings, machines, tools and equipment, etc. Human capital includes knowledge and skills of human resource, which is gained by education, training and experience. Return for capital is termed as interest.
- 20. 20 Types of Capital •Fixed capital • Circulating capital • Real capital • Human capital • Tangible capital • Individual capital • Social Capital
- 21. 21 Entrepreneur Entrepreneurship consists ofthree major functions, viz., coordination, management and supervision. An entrepreneur is a person who creates an enterprise. The success or failure depends on the efficiency of the entrepreneur.
- 22. 22 Entrepreneur An enterprise isan organization that undertakes commercial purposes or business ventures and focuses on providing goods and services. An enterprise is composed of individuals and physical assets with a common goal of generating profits.
- 23. 23 Functions of an entrepreneur •Initiating business enterprise and resource co- ordination • Risk-bearing or uncertainty-bearing • Innovations
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- 25. 25 WHAT IS APRODUCTION FUNCTION? THE PRODUCTION FUNCTION IS A MATHEMATICAL EQUATION DETERMINING THE RELATIONSHIP BETWEEN THE FACTORS AND QUANTITY OF INPUT FOR PRODUCTION AND THE NUMBER OF GOODS IT PRODUCES MOST EFFICIENTLY. IT ANSWERS THE QUERIES RELATED TO MARGINAL PRODUCTIVITY, LEVEL OF PRODUCTION, AND CHEAPEST MODE OF PRODUCTION OF GOODS.
- 26. 26 WHAT IS APRODUCTION FUNCTION?
- 27. 27 WHAT IS APRODUCTION FUNCTION? THE GENERAL PRODUCTION FUNCTION FORMULA IS: Q= F (K, L) HERE Q IS THE OUTPUT QUANTITY, L IS THE LABOR USED, AND K IS THE CAPITAL INVESTED FOR THE PRODUCTION OF THE GOODS.
- 28. 28 WHAT IS APRODUCTION FUNCTION? THE F IS A MATHEMATICAL FUNCTION DEPENDING UPON THE INPUT USED FOR THE DESIRED OUTPUT OF THE PRODUCTION. FOR EXAMPLE, IT MEANS IF THE EQUATION IS RE-WRITTEN AS:
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Editor's Notes
- #11 For instance, producing five units of wine and five units of cotton (point B) is just as attainable as producing three units of wine and seven units of cotton. Point X represents an inefficient use of resources, while point Y represents a goal that the economy simply cannot attain with its present levels of resources. As we can see, for this economy to produce more wine, it must give up some of the resources it is currently using to produce cotton (point A). If the economy starts producing more cotton (represented by points B and C), it would need to divert resources from making wine and, consequently, will produce less wine than it is producing at point A. Moreover, by moving production from point A to B, the economy must decrease wine production by a small amount compared to the increase in cotton output. But if the economy moves from point B to C, wine output will be reduced by about 50%, while the cotton output only increases by about 75%. Keep in mind that A, B, and C all represent the most efficient allocation of resources for the economy. The nation must decide how to achieve the PPF and which combination to use. For example, if more wine is in demand, the cost of increasing its output is proportional to the cost of decreasing cotton production. Markets play an important role in telling the economy what the PPF should look like. The Bottom Line The production possibility curve illustrates the maximum possible output for two products when there are limited resources. It also illustrates the opportunity cost of making decisions about allocating resources. Businesses and economists use the production possibility frontier (PPF) to consider possible production scenarios by changing resource variables. The PPF allows businesses to learn how variables influence production or decide which products to manufacture. Economists can use it to learn how much of a specific good can be produced in a country while not producing another good to analyze economic efficiency levels and growth.