Long run production function is related to

What is the Production Function? The functional relationship between physical inputs (or factors of production) and output is called production function. It assumed inputs as the explanatory or independent variable and output as the dependent variable. Mathematically, we may write this as follows: Q = f (L,K) Here, ‘Q’ represents the output, whereas ‘L’ and ‘K’ are the inputs, representing labour and Time Period and Production Functions The production function is differently defined in the short run and in the long run. This distinction is extremely relevant in Those inputs that vary directly with the output are called variable factors. These are the factors that can be changed. Variable factors exist in both, the short run and the long run. Examples of variable factors include daily- On the other hand, those factors that cannot be varied or changed as the output changes are called fixed Consequently, we can define two production functions: short-run and long-run. The short-run production function defines the relationship between one variable factor (keeping all other factors fixed) and the output. The For example, consider that a firm has 20 units of labour and 6 acres of land and it initially uses one unit of labour only (variable factor) on its land (fixed factor). So, the land-labour ratio is 6:1. Now, if the firm chooses to employ 2 units of The long-run production function is different in concept from the short run production function. Here, all factors are varied in...

1 Welcome to Economics! • Introduction • 1.1 What Is Economics, and Why Is It Important? • 1.2 Microeconomics and Macroeconomics • 1.3 How Economists Use Theories and Models to Understand Economic Issues • 1.4 How To Organize Economies: An Overview of Economic Systems • Key Terms • Key Concepts and Summary • Self-Check Questions • Review Questions • Critical Thinking Questions • 2 Choice in a World of Scarcity • Introduction to Choice in a World of Scarcity • 2.1 How Individuals Make Choices Based on Their Budget Constraint • 2.2 The Production Possibilities Frontier and Social Choices • 2.3 Confronting Objections to the Economic Approach • Key Terms • Key Concepts and Summary • Self-Check Questions • Review Questions • Critical Thinking Questions • Problems • 3 Demand and Supply • Introduction to Demand and Supply • 3.1 Demand, Supply, and Equilibrium in Markets for Goods and Services • 3.2 Shifts in Demand and Supply for Goods and Services • 3.3 Changes in Equilibrium Price and Quantity: The Four-Step Process • 3.4 Price Ceilings and Price Floors • 3.5 Demand, Supply, and Efficiency • Key Terms • Key Concepts and Summary • Self-Check Questions • Review Questions • Critical Thinking Questions • Problems • 4 Labor and Financial Markets • Introduction to Labor and Financial Markets • 4.1 Demand and Supply at Work in Labor Markets • 4.2 Demand and Supply in Financial Markets • 4.3 The Market System as an Efficient Mechanism for Information • Key Terms • Key Concepts and Summ...

Production in the short run in which the functional relationship between input and output is explained assuming labor to be the only variable input, keeping capital constant. In the long run production function, the relationship between input and output is explained under the condition when both, labor and capital, are variable inputs. In the long run, the supply of both the inputs, labor and capital, is assumed to be elastic (changes frequently). Therefore, organizations can hire larger quantities of both the inputs. If larger quantities of both the inputs are employed, the level of production increases. In the long run, the functional relationship between changing scale of inputs and output is explained under laws of returns to scale. The laws of returns to scale can be explained with the help of isoquant technique. Isoquant Curve : ADVERTISEMENTS: The relationships between changing input and output is studied in the laws of returns to scale, which is based on production function and isoquant curve. The term isoquant has been derived from a Greek work iso, which means equal. Isoquant curve is the locus of points showing different combinations of capital and labor, which can be employed to produce same output. It is also known as equal product curve or production indifference curve. Isoquant curve is almost similar to indifference curve. However, there are two dissimilarities between isoquant curve and indifference curve. Firstly, in the graphical representation, indiffer...

6 Costs and Production 6.1 Explicit and implicit costs, and accounting and economic profits From: Each business, regardless of size or complexity, tries to earn a profit: Profit = Total Revenue – Total Cost Total revenue is the income the firm generates from selling its products. We calculate it by multiplying the price of the product times the quantity of output sold: Total Revenue = Price × Quantity We will see in the following chapters that revenue is a function of the demand for the firm’s products. Total cost is what the firm pays for producing and selling its products. Recall that production involves the firm converting inputs to outputs. Each of those inputs has a cost to the firm. The sum of all those costs is total cost. We will learn in this chapter that short run costs are different from long run costs. We can distinguish between two types of cost: explicit and implicit. Explicit costs are out-of-pocket costs, that is, actual payments. Wages that a firm pays its employees or rent that a firm pays for its office are explicit costs. Implicit costs are more subtle, but just as important. They represent the opportunity cost of using resources that the firm already owns. Often for small businesses, they are resources that the owners contribute. For example, working in the business while not earning a formal salary, or using the ground floor of a home as a retail store are both implicit costs. Implicit costs also include the depreciation of goods, materials, and equip...

theory of production, in The various decisions a business enterprise makes about its productive activities can be classified into three layers of increasing Minimization of short-run The production function However much of a commodity a business firm produces, it endeavours to produce it as cheaply as possible. Taking the quality of the product and the prices of the productive factors as given, which is the usual situation, the firm’s task is to determine the cheapest combination of i.e., an equation that expresses the relationship between the quantities of factors employed and the amount of product obtained. It states the amount of product that can be obtained from each and every combination of factors. This relationship can be written mathematically as y = f ( x 1, x 2, . . ., x n; k 1, k 2, . . ., k m). Here, y n variable factors of x 1 and so on. The firm is also presumed to use m fixed factors, or factors like fixed machinery, salaried staff, etc., the quantities of which cannot be varied readily or habitually. The available quantity of the first fixed factor is indicated in the formal by k 1 and so on. The entire formula expresses the amount of output that results when specified quantities of factors are employed. It must be noted that though the quantities of the factors determine the quantity of output, the reverse is not true, and as a general rule there will be many combinations of productive factors that could be used to produce the same output. Finding the chea...

Long run production function In the long run, all inputs are variable. The long run production function is referred to as laws of returns to scale. The word 8 scale 9 refers to the long run situation where all inputs are changed in the same proportion or in different proportion. So that in the long run, there may arise Constant Returns to Scale(CRS), Increasing Returns to Scale(IRS) and Decreasing Returns to Scale( DRS). The long run product ion function is represented by Isoquants. ISOQUANTS Production function involving two variable inputs is based upon the fundamental concept known as isoquant. Isoquant is derived from two words 8 Iso 9 means equal and 8 quantum 9 means quantity. An Isoquant may also be known as

6 Costs and Production 6.1 Explicit and implicit costs, and accounting and economic profits From: Each business, regardless of size or complexity, tries to earn a profit: Profit = Total Revenue – Total Cost Total revenue is the income the firm generates from selling its products. We calculate it by multiplying the price of the product times the quantity of output sold: Total Revenue = Price × Quantity We will see in the following chapters that revenue is a function of the demand for the firm’s products. Total cost is what the firm pays for producing and selling its products. Recall that production involves the firm converting inputs to outputs. Each of those inputs has a cost to the firm. The sum of all those costs is total cost. We will learn in this chapter that short run costs are different from long run costs. We can distinguish between two types of cost: explicit and implicit. Explicit costs are out-of-pocket costs, that is, actual payments. Wages that a firm pays its employees or rent that a firm pays for its office are explicit costs. Implicit costs are more subtle, but just as important. They represent the opportunity cost of using resources that the firm already owns. Often for small businesses, they are resources that the owners contribute. For example, working in the business while not earning a formal salary, or using the ground floor of a home as a retail store are both implicit costs. Implicit costs also include the depreciation of goods, materials, and equip...

What is the Production Function? The functional relationship between physical inputs (or factors of production) and output is called production function. It assumed inputs as the explanatory or independent variable and output as the dependent variable. Mathematically, we may write this as follows: Q = f (L,K) Here, ‘Q’ represents the output, whereas ‘L’ and ‘K’ are the inputs, representing labour and Time Period and Production Functions The production function is differently defined in the short run and in the long run. This distinction is extremely relevant in Those inputs that vary directly with the output are called variable factors. These are the factors that can be changed. Variable factors exist in both, the short run and the long run. Examples of variable factors include daily- On the other hand, those factors that cannot be varied or changed as the output changes are called fixed Consequently, we can define two production functions: short-run and long-run. The short-run production function defines the relationship between one variable factor (keeping all other factors fixed) and the output. The For example, consider that a firm has 20 units of labour and 6 acres of land and it initially uses one unit of labour only (variable factor) on its land (fixed factor). So, the land-labour ratio is 6:1. Now, if the firm chooses to employ 2 units of The long-run production function is different in concept from the short run production function. Here, all factors are varied in...

Production in the short run in which the functional relationship between input and output is explained assuming labor to be the only variable input, keeping capital constant. In the long run production function, the relationship between input and output is explained under the condition when both, labor and capital, are variable inputs. In the long run, the supply of both the inputs, labor and capital, is assumed to be elastic (changes frequently). Therefore, organizations can hire larger quantities of both the inputs. If larger quantities of both the inputs are employed, the level of production increases. In the long run, the functional relationship between changing scale of inputs and output is explained under laws of returns to scale. The laws of returns to scale can be explained with the help of isoquant technique. Isoquant Curve : ADVERTISEMENTS: The relationships between changing input and output is studied in the laws of returns to scale, which is based on production function and isoquant curve. The term isoquant has been derived from a Greek work iso, which means equal. Isoquant curve is the locus of points showing different combinations of capital and labor, which can be employed to produce same output. It is also known as equal product curve or production indifference curve. Isoquant curve is almost similar to indifference curve. However, there are two dissimilarities between isoquant curve and indifference curve. Firstly, in the graphical representation, indiffer...

theory of production, in The various decisions a business enterprise makes about its productive activities can be classified into three layers of increasing Minimization of short-run The production function However much of a commodity a business firm produces, it endeavours to produce it as cheaply as possible. Taking the quality of the product and the prices of the productive factors as given, which is the usual situation, the firm’s task is to determine the cheapest combination of i.e., an equation that expresses the relationship between the quantities of factors employed and the amount of product obtained. It states the amount of product that can be obtained from each and every combination of factors. This relationship can be written mathematically as y = f ( x 1, x 2, . . ., x n; k 1, k 2, . . ., k m). Here, y n variable factors of x 1 and so on. The firm is also presumed to use m fixed factors, or factors like fixed machinery, salaried staff, etc., the quantities of which cannot be varied readily or habitually. The available quantity of the first fixed factor is indicated in the formal by k 1 and so on. The entire formula expresses the amount of output that results when specified quantities of factors are employed. It must be noted that though the quantities of the factors determine the quantity of output, the reverse is not true, and as a general rule there will be many combinations of productive factors that could be used to produce the same output. Finding the chea...