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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