The Concept of Production Function | Class 11 | Economics Notes

 Production :-

             In general, the term 'production' refers to the creation of goods and services. Man by his scientific and technological knowledge can change the shapes and patterns of all goods and hence such, can raise the utility of these goods. Thus, production also refers to the creation of utility.

Production Function:-

                                  The term 'production function' refers to the relationship between physical input and physical output of a firm. In other words, production function refers to the functional relationship between physical input and physical output of a firm.

Symbolically, production function is written as -

          Q = f(N, L, K, M, .........)

Where, 

Q = total output 

N = land

L = labour

K = capital

M = raw materials 

f = functional relation 

Variable Factors :-

         Variable factors refers to those factors which  change with the change in output. Variable factors are those factors, which can be changed in the short run. They vary directly with the output. For example, Labour, raw material, etc.          

Fixed Factor :-

                   Fixed factor refers to those factor which do not change with the change in output. Fixed factors are those factors which cannot be changed in the short run. They do not vary directly with the output. For example, Capital, land, plant and machinery, etc.

Short Run Period :-

               In the short run a firm cannot alter the fixed inputs. Thus, short run period is defined as that period that is not sufficient to bring about changes in the fixed factors of production.  In other words, short period refers to the period of time in which a firm cannot change some of its factors like plant, machines, building, etc. due to insufficiency of time but can change any variable factor like labour, raw material, etc. Thus, in short run, there will be some factors of production that are fixed at predetermined levels, e.g., a farmer may have fixed amount of land.

Long Run Period :-

                   In the long run a firm can change all factors of production. Hence, a long period is a time period during which a firm can change all its factors of production including machines, building, organization, etc. In other words, it is a period of time during which supplies can adjust itself to change in demand

                 

The Concepts of Revenue| Microeconomics Notes| CBSE| AHSEC| Chapter 7 Notes - Nemazedu

 Revenue Definition:-

               The term 'revenue' refers to the amount of money earned by a firm/enterprenure by way of selling its products at different prices. The revenue of a firm/enterprenure is its sales, receipts or income.

The concepts of revenue include - Total Revenue, Average Revenue and Marginal Revenue.

Total Revenue:- 

                The term 'total revenue' refers to the total amount of income earned by a firm/enterprenure through sale of its product. The total revenue of a firm is the sum of all sales, receipts or income of that concerned firm.

Thus,

           TR = AR × Q

Where, 

    TR = Total revenue

     AR = Average revenue or price per unit

       Q = Output

As for example, if a firm sell 200 pen at Rs. 50 each, the total revenue would be

      TR = Rs 50 × 200

       TR = Rs 10000.

Average Revenue:-

                 Average revenue refers to the revenue per unit of output produced by a firm. It is obtained by dividing the total revenue by the total output. 

Thus,

          Average Revenue(AR)= total revenue/total output

    or, 

            AR = TR/Q

As for evample, for a firm having total revenue of Rs10000 after selling 200 pens,we have 

         AR = 10000/200

                = 50

Hence, the average revenue is Rs50 which is the price of the product.

Marginal Revenue:-

               The tern marginal revenue refers to the amount of change in the total receipts due to the sale of an additional units. In other words, marginal revenue is the change in total revenue which results from the sale of one more unit of output.

Thus,

        MR = ∆TR/∆Q

   or, MR =  TRn - TRn-1

Where, MR = marginal revenue

               TRn = total revenue from 'n' units.

           TRn-1 = total revenue from (n-1) units.

For example, is by selling 201 units of the pen the total revenue increases from Rs10000 to Rs10050, then the marginal revenue from sale of the additional one unit is Rs 50.

Since, 

            MR =  TRn - TRn-1

                   =  Rs 10050 - Rs10000

                   = Rs 50

Relationship between AR and MR curve:-

          The relationship between AR and MR curve is given below -

* when MR is more than AR, AR is increasing,

* when MR is equal to AR, AR is constant,

* when MR is less than AR, AR is decreasing.

           The relationship between AR and MR is shown in the figure given above. As in the figure , when marginal revenue (MR) is rising and above average revenue(AR), AR is rising upward. When MR is equal to AR, AR is constant and parallel to the X-axis. When MR is falling or less than AR, AR is falling. Hence, it is MR which determines the shape of the AR curve.

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Introduction to Microeconomics Part 1

Introduction to Microeconomics Part 2

Theory of Supply

Theory of Demand