LD COLLEGE OF ENGINEERING

PATEL TEJAS 140280119081PATEL TRUPAL 140280119082PATEL VATSAL 140280119083PATHAK JUGAL 140280119084POSHIYA DHARMANSHU 140280119085

Welcome

Theory of Production

Theory of Production

Production is a process that create/adds value or utility

It is the process in which the inputs are converted in to outputs.

Production Function

Production function means the functional relationship between inputs and outputs in the process of production.

It is a technical relation which connects factors inputs

used in the production function and the level of outputs

Q = f (Land, Labour, Capital, Organization,technology, etc)

Factors of Production

Land

Meaning : according to Marshall , land stands for all natural resources which yield an income

Characteristics : *nature’s gift *limited *no supply price *permanent *lacks of mobility *margin of cultivation

LandWhat Raw materials are needed to produce your product?

The “gifts of nature” that we use to produce goods and services. All the things we call natural resources.Comes from the air, water, or the earthLand, minerals, water

•Renewable Water, air growing things

•Non-RenewableCoal, oil

HOW ARE GOODS PRODUCED?

Nature supplies raw materials necessary to make things

These raw materials are called Natural Resources

Natural Resources

–Example: Chicken noodle soup contains chicken meat, spices, water, and vegetables, all of which came from the nature

Figure 2.5 shows how long the known reserves of nonrenewable energy resources will last at the current growth rates of use.

New reserves are constantly being discovered.

HOW ARE GOODS PRODUCED?

Labour

Meaning : work whether manual or mental , which is undertaken for a monetary consideration …..

Meaning in sense of Marshall words..• Characteristics : * connected with labourer * can’t preserve * has weak bargaining power * price of labour react rather

curiously on its supply

Labor

• What will your employees have to do to create your product?

• What work will need to be done to turn your raw material into your finished product

Work time and work effort that people devote to producing goods and services

• People’s efforts, labor• Effort can be physical or mental

HOW ARE GOODS PRODUCED?

Human effort used to produce goods and services is called labor

Labor can be physical or mental

Factor 2: Human Labor

•Example: to the soup, farmers raise the animals and crops, a truck driver drives them to a factory, and workers operate machinery to mix and can it (physical labor)

•Someone has to design the machines, and think of a recipe for the soup (mental labor)

Oil Consumption by Country

HOW ARE GOODS PRODUCED?

HOW ARE GOODS PRODUCED?

Capital

Meaning : wealth which is used in producing further wealth

Term used for : plant and machinery , tools and accessories , stocks and row material …..

Importance : role in modern productive system production is not possible without capital creation of employment opportunities in

the country

Capital What equipment and people will you need to

create your product

Physical capital: What tools, machines and factories will you needed to create your product

Financial capital: funds the firm use to buy physical capital

Human capital: What knowledge, skills, education and experience will your employees need to have in order to produce your product (for example: a seamstress , a chemist, a computer technician )

• Goods made by people and used to produce other goods and services• Tools, instruments, machines, buildings, and other constructions that

have been produced in the past and that businesses now use to produce goods and services.

HOW ARE GOODS PRODUCED?

Producing goods and services requires tools and equipment

The buildings, machines, supplies, etc. used to produce are called capital resources, or capital goods

Factor 3: Capital Resources

•Examples: the truck used to drive to the factory, the machines used to can the soup, and the factory building itself

HOW ARE GOODS PRODUCED?

• Figure 2.7 shows measures of human capital and how they have changed since 1910.

Entrepreneur

What he /s do ??? Co-ordinate and co-relate the other factors of

production.Starts the work @ organize it @ supervise it.• Functions : commence a business enterprise by developing

new product or by modifying the existing product.

took the final responsibility . as innovator .

Entrepreneurship The human resource that organized and combines

labor, land, capital. The quantity and quality of entrepreneurship is

hard to describe and measure. But we can easily recognize brilliant

entrepreneurs by their enormous financial success.

Sam Walton (Wal-Mart), Bill Gates (Microsoft), and Michael Dell (Dell Computers) are examples of outstanding entrepreneur's.

HOW ARE GOODS PRODUCED?

Making the other 3 factors of production into something useful often takes creativity and some risk

Entrepreneurship is the factor of production that ties the others together

Entrepreneurship: The 4th Factor

•Examples: Someone has to decide what to name the soup, where to sell it, and how much to charge

Scarcity- Nearly all resources are scare, meaning there is a limited supply available to meet unlimited wants The more scarce a resource, the more

expensive it is. Inverse Economic Relationship – when

fruit is out of season, supply is more scarce – This causes the price to increase because

it is more valuable

Influences on Entrepreneurs Decision Making

Opportunity Cost – resources are scare, the choice to use a resource in one way means not using it in another.Use a field to grow corn means the field cannot be used to grow soy beans

Influences on Entrepreneurs Decision Making

Productivity- is a measure of the amount of output produced by a given amount of inputs. It reflects how efficiently resources are being used.

This is also referred to as measuring the efficient use of the factors of production. For example, the productivity of a farmer (labor)

increases with the use of a tractor (capital). Investing in human capital is one way to increase

productivity

Influences on Entrepreneurs Decision Making

Influences on Entrepreneurs Decision Making

To realize a profit, produce good/service at a cost lower than the market price for the good or service.

Profit is the money left over from selling a good or service after the cost of buying productive resources have been paid. Minimize the use of scarce resource in

production Maximize the productivity of the factors used in

production to keep cost as low as possible.

In order to study economic relationships, we need a sensible way to categorize the various things in our economic world. Take a look at this list of things that have value. Which of them would you place in

the category of LABOR? Which are LAND? Which are CAPITAL? Are there some that don't fit in any of the three?

Some Things that Have Value:

   Food in a Restaurant   Oil in the Ground   Your Mom's old House, which you Rent to Tenants   Fish in the Ocean   Teaching   A Building Site   Food on your table   A $100 Bill

   A House You Live in   A Truck   A Broadcast Frequency   Ditch Digging   Computer Programming   A Certificate for 100 Shares of Microsoft   Playing Music in the Subway

Factors of Production

THE END