AP Inter 1st Year Economics Notes Chapter 4 Theory of Production

Students can go through AP Inter 1st Year Economics Notes 4th Lesson Theory of Production will help students in revising the entire concepts quickly.

AP Inter 1st Year Economics Notes 4th Lesson Theory of Production

→ Production means creation of goods.

→ The factors which participate in production process are known as factors of production. They are

1. Land
2. Labour
3. Capital
4. Organisation.

→ Production function explains the physical relationship between inputs and outputs.

→ Short period production function also known as the law of variable proportions. It explains the changes in output when a factor of production is varied while keeping other factors constant. In this processes three stages of returns will take place.

1. Increasing returns
2. Diminishing returns
3. Negative returns.

→ Long period production function also known as the law of returns to scale. In the long period while increasing all the factors of production, how to change the output. The output varied in three ways.

1. Increasing returns to scale
2. Constant returns to scale
3. Diminishing returns to scale

→ Internal economies are those economies which are open to an individual firm when its size expands.

→ External economies are those economies which are open to all the firms or to an industry when its size expands.

→ The quantity of a commodity that a seller is prepared to sell at a particular price and at a particular time.

→ The amount of expenditure incurred by producing a commodity. There are different cost curves in short run and long run. They are fixed cost, variable cost, total cost, average cost, margin cost etc.

→ The proceeds or receipts that a firm gets from the sale of its product is called revenue. They are three types.

1. Total revenue
2. Average revenue
3. Marginal revenue

→ The term factors of production refers to all those individuals, agents, materials, machines, inputs, etc. which participate and which help in the production of various goods and services.

→ The four factors of production in Economics are land, labour, capital and organisation.

→ The physical/technical or mathematical relationship between physical quantities of inputs and physical quantities of outputs is called production function.

→ The law of variable proportions, also known as the law of diminishing returns, which applies in the short run, explains the changes in output when a factor of production, is varied or changed keeping other factors constant.

→ In the law of variable proportions, there are 3 stages of returns namely, stage of increasing returns, stage of diminishing returns and stage of negative returns.

→ The law of returns to scale, which applies in the long run, explains the changes in output when all the inputs (both fixed and variable) are changed in the long run.

→ In the law of returns to scale, there are 3 stages, namely, the stage of increasing returns to scale, the stage of constant returns to scale, the stage of diminishing returns to scale.

→ The benefits or advantages which a firm enjoys by changing its scale of production or operations from small scale to large scale are known as economies of large scale production.

→ Economies of large scale production are of 2 types, namely, a) Internal Economies and b) External Economies.

→ lnternal Economiesareof5types, namely, Technical Economies; Managerial Economies, Marketing Economies, Financial Economies, Risk-bearing Economies.

→ External Economies of scale are of 4 types, namely, Infrastructure Economies, Specialisation Economies, Information and Marketing Economies, Research Economies.

→ The term supply refers to the quantities which a seller / business firm is willing and prepared to sell at a particular price and at a particular time.

→ various determinants of supply are price of the good, prices of related goods, prices of factors of production, state of technology, government policy, weather conditions.

→ The equation which shows the functional relationship between the determinants of supply of a good and the supply of that good is called supply function.

→ The table or schedule which shows the various quantities offered for sale at different prices is known as supply schedule.

→ The law of supply states that “other things remaining the same, the supply of a commodity extends / expands (increases) with a rise in its price and contracts (decreases) with a fall in its price.”

→ A supply curve slopes upwards from left to right, indicating that price and supply are directly related.

→ Elasticity of supply is divided into five types. They are: 1) Perfectly elastic supply (E_s = ∞), 2) Perfectly inelastic supply (E_s = 0), 3) Relatively elastic supply (E_s > 1), 4) Relatively inelastic supply (E_s < 1), 5) Unitary elasticity of supply (E_s = 1).

→ The various types of expenditure incurred by a producer / business firm to produce goods is known as production cost.

→ Money, costs, real costs, opportunity costs, explicit costs, implicit costs, fixed costs, variable costs are some of the cost concepts. Average fixed cost, average variable cost, average cost, marginal cost are some of short run cost concepts.

→ The receipts or sale proceeds received by a business firm through the sale of its goods are known as total revenue. Revenue is divided into three types. They are: 1) Total revenue, 2) Average revenue, 3) Marginal revenue.

→ The revenue received on an average by a business firm from the sale of each unit is known as average revenue. The additional or extra revenue received from the sale of an additional unit of the good is known as marginal revenue.

→ In perfect competition, average revenue and marginal revenue curves are parallel to X – axis.

→ In imperfect competition, average revenue curve and marginal revenue curves slope downwards from left to right.

→ The costs which remain fixed and which do not change with a change in output are known as fixed costs.

→ The costs which change with a change in direct proportion to a change in output or quantity produced are called variable costs.

→ ఉత్పత్తి అనగా ప్రయోజనాల సృష్టి.

→ ఉత్పత్తిలో పాల్గొనే కారకాలను ఉత్పత్తి కారకాలంటారు. అది నాలుగు

• భూమి.
• శ్రమ.
• మూలధనం.
• వ్యవస్థాపన.

→ భౌతిక ఉత్పత్తి సాధనాలకు, భౌతిక ఉత్పత్తికి మధ్యగల సంబంధంను ఉత్పత్తి ఫలం అంటారు.

→ స్వల్పకాలం అనగా ఉత్పత్తి ప్రక్రియలో చర సాధనాలను మాత్రమే మార్చి, ఉత్పత్తిలో మార్పులు చేపట్టగలిగే కాలపరిధి.

→ చరానుపాత సూత్రం స్వల్ప కాలానికి చెందినది. ఈ సూత్రం ప్రకారం కొన్ని ఉత్పత్తి కారకాలను స్థిరంగా ఉంచి చర ఉత్పత్తి సాధనం పరిమాణంలో మార్పు చేస్తూ ఉన్నప్పుడు ఉత్పత్తి ఏ అనుపాతంలో మారుతుందో తెలియజేస్తుంది.

→ దీర్ఘ కాలంలో అన్ని ఉత్పత్తి సాధనాలు చర అనుపాతంలో మారినపుడు ఉత్పత్తి ఏ అనుపాతంలో మార్పు చెందుతుందో తెలియజేసే దానిని తరహాననుసరించి ప్రతిఫలాలు అంటారు.

→ ఒక నిర్ణీత ధర వద్ద నిర్ణీతకాలంలో మార్కెట్లో విక్రయానికి సిద్ధంగా ఉన్న వస్తు పరిమాణాన్ని సప్లయ్ అంటారు. ఇతర పరిస్థితులు మారనంత వరకు ఒక వస్తువు ధర తగ్గితే సప్లయ్ తగ్గుతుంది. ధరపెరిగితే సప్లయ్ పెరుగుతుంది.

→ ఒక ఉత్పత్తిదారుడు ఉత్పత్తికి వెచ్చించే మొత్తాన్ని “ఉత్పత్తి వ్యయం” అంటారు. వ్యయాలు రెండు రకాలు

• సాధారణ వ్యయాలు
• ఆర్థిక వ్యయాలు.

→ ఒక సంస్థ ఉత్పత్తి చేసిన వస్తురాశిని అమ్మగా వచ్చేదే మొత్తం రాబడి. రాబడి మూడు రకాలు

• మొత్తం రాబడి
• సగటు రాబడి
• ఉపాంత రాబడి.