Author: admin
-
Economies and Diseconomies of Scale
What are Economies of scale? Economies of scale, As a firm expands its production capacity, the efficiency of production also increases. It is able to draw more output per unit of input, leading to low average total costs. This condition is termed as economies of scale. Economies of scale result in cost-saving for a firm as the…
-
What is Long Run Cost?
What is Long Run Cost? Long run cost refers to the time period in which all factors of production are variable. Long-run costs are incurred by a firm when production levels change over time. In the long run, the factors of production may be utilised in changing proportions to produce a higher level of output. In…
-
What is Short Run Cost?
What is Short Run Cost? Short Run Cost refers to a certain period of time where at least one input is fixed while others are variable. In the short-run period, an organisation cannot change the fixed factors of production, such as capital, factory buildings, plant and equipment, etc. However, the variable costs, such as raw material,…
-
Types of Costs
While computing the total cost of production, there are several types of costs that an organisation needs to consider apart from those involved in the procurement of raw material, labour and capital. Different circumstances give way to different types of costs. For effective decision making, it is essential to distinguish between and interpret the various…
-
What is Returns to Scale?
What is Returns to Scale? Returns to scale imply the behavior of output when all the factor inputs are changed in the same proportion given the same technology. In other words, the law of returns to scale explains the proportional change in output with respect to proportional change in inputs. Table of Content [Show] Assumption of Returns…
-
Producer Equilibrium & Expansion Path
What is Producer Equilibrium? Producer equilibrium implies a situation in which a producer maximizes his/her profits. Thus, he /she chooses the quantity of inputs and output with the main aim of achieving the maximum profits. Table of Content [Show] In other words, he/she needs to decide the appropriate combination among different combinations of factors of production…
-
Isoquant Curve
What is Isoquant Curve? Isoquant Curve: A technical relation that shows how inputs are converted into output is depicted by an isoquant curve. It shows the optimum combinations of factor inputs with the help of prices of factor inputs and their quantities that are used to produce the same output. The term ISO implies equal and quant means quantity or…
-
Law of Diminishing Returns
Law of Diminishing Returns Definition As equal increments of one input are added; the inputs of other productive services being held, constant, beyond a certain point the resulting increments of the product will decrease, i.e., the marginal product will diminish.G. Stigler As the proportion of one factor in a combination of factors is increased, after…
-
Production in the Short Run
The short run refers to a time period in which the supply of the inputs, such as plant and machinery is fixed. Only the variable inputs, such as labour and raw materials can be used to increase the production of the goods. Table of Content [Show] In other words, in the short run, change in production is brought…
-
Types of Production Functions: Cobb Douglas, Leontief, CES
Types of Production Functions are: Table of Content [Show] There are different types of production functions that can be classified according to the degree of substitution of one input by the other. Figure illustrates different types of production functions: Cobb Douglas Production Function The Cobb Douglas production function, given by American economists, Charles W. Cobb and Paul. H Douglas, studies the…