3.2.pptx-FACTORS OF PRODUCTION AND PRODUCTION FUNCTION

BUSINESS ECONOMICS
107
UNIT- 3
Faculty Name: Dr. Shuchi Singhal
Designation: Associate Professor
School/Dept: Management
Email address of Faculty Member: s.singhal@dme.ac.in

Programme Outcomes
2
PO1: Apply knowledge of various functional areas of business
PO2: Develop communication and professional presentation skills
PO3: Demonstrate critical thinking and Analytical skills for business
decision making
PO4: Illustrate leadership abilities to make effective and productive
teams
PO5: Explore the implications and understanding of the process of
starting a new venture
PO6: Imbibe responsible citizenship towards a sustainable society
and ecological environment
PO7: Appreciate inclusivity towards diverse cultures and imbibe
universal values
PO8: Foster Creative thinking to find innovative solutions for
various business situations

Course Objective and Course Outcomes
3
CO1:Understand the fundamental concepts of Business
Economics.
CO2:Analyze the relationship between consumer
behaviour and demand.
CO3:Explore the theory of production through the use
of ISO-QUANTS.
CO4:Understand the concept and relevance of short-
term and long-term cost.
CO5:Examine pricing decisions under various market
conditions.
CO6:Analyse economic challenges posed to

Unit-III : (Theory of Production)
5
3.1 MEANING AND CONCEPT OF PRODUCTION
3.2FACTORS OF PRODUCTION AND PRODUCTION FUNCTION
3.3 FIXED AND VARIABLE FACTORS
3.4LAW OF VARIABLE PROPORTION (SHORT RUN PRODUCTION ANALYSIS)-Part 1
3.5 LAW OF VARIABLE PROPORTION (SHORT RUN PRODUCTION ANALYSIS)-Part
2
3
4
3.8 LAW OF RETURNS TO A SCALE(LONG RUN PRODUCTION ANALYSIS)
THROUGH THE USE OF ISOQUANTS- Part 2
THROUGH THE USE OF ISOQUANTS-Part 3

3.2
• Factors of
Production.
• Production Function
6

By: Shuchi Goel 7
3.2 FACTORS OF
PRODUCTION AND
PRODUCTION
FUNCTION

By: Shuchi Goel 8
Suggested Readings
1. Author: Christopher R. Thomas & S. Charles Maurice
Title of the Book: Managerial Economics-Foundations of
Business Analysis and Strategy
Chapter’s Name: Production and Cost in the Short Run
2. Author: Paul A. Samuelson and William D Nordhaus
Title of the Book: Economics
Chapter’s Name: The Central Concepts of Economics
https://www.intelligenteconomist.com/factors-of-production/

By: Shuchi Goel 9
3.2 FACTORS OF PRODUCTION AND PRODUCTION FUNCTION
3.2.1 Factors of Production
• Each distinct input into the production process can be regarded as a factor of
production. All the factors of production help in the process of production.
• For example, for the production of garments, piece of land is required to build a
factory, where the production takes place.
• This also requires the services of labour. Capital is objects like machinery,
equipment, etc that are used in production. Finally, the services of entrepreneur
are required to organize, supervise and coordinate the whole process of
production.

By: Shuchi Goel 10
• The traditional four-fold classification of factors of production, viz., land, labour,
capital and entrepreneur is modified by some economists.
• To some, capital includes land and labour includes entrepreneur.
• At the extreme, Karl Marx emphasised only one factor of production, i.e., labour.
In his view, land cannot produce anything by itself, unless it is used by man.
Further, capital is man-made and is the embodiment of labour. Finally,
entrepreneur is not a separate factor of production, rather it is a form of labour.
Therefore, all factors of production are reducible to labour.

By: Shuchi Goel 11
1. Land- or more generally, natural resources- represent the gift of nature to our
societies. It consists of the land used for farming or for underpinning houses,
factories and roads; the energy resources that fuel our cars and heat our homes;
and the non energy resources like copper and iron ore, etc.
2. Labour- consists of the human time spent in production- working in automobile
factories, writing software, teaching school, or baking pizzas. Thousands of
occupations and tasks, at all skill levels, are performed by labour.

By: Shuchi Goel 12
3. Capital- Capital goods include machines, buildings, tools, etc used to produce
goods and services. Some common examples of capital include hammers,
forklifts, conveyer belts, computers, and delivery vans The accumulation of
specialized capital goods is essential to the task of economic development.
4. Entrepreneurship- Entrepreneurship is the risk-taking resource. Entrepreneurs
are the people who combine land, labour and capital resources to start a business.
Not every business is successful; sometimes they fail. Payment for risk taking or
entrepreneurship is called profit.

By: Shuchi Goel 13
3.2.2 Production Function
• The relationship between the amount of input required and the amount of output
that can be obtained is called the production function.
• The production function specifies the maximum output that can be produced with
a given quantity of inputs, given the existing technology or state of knowledge
concerning available production methods.

By: Shuchi Goel 14
• A rational producer always uses technically most efficient method of production.
• Suppose, the two methods of production P1 and P2 require 2 and 2 units of labour,
while 3 and 4 units of capital respectively.
• Here, the rational producer will choose method P1 to produce the commodity,
since it saves one unit of capital without using more amount of labour. Hence, this
method is economical and more efficient.
• Mathematically, production function can be expressed as:
Q = f (I, L, K, E)
Where I = Land, L= labour, K= Capital and E= Entrepreneur

By: Shuchi Goel 15
Conclusion
• Each distinct input into the production process can be regarded as a factor of
production.
• Mathematically, production function can be expressed as:
Q = f (l, L, K, E)
Where I = Land, L= labour, K= Capital and E= Entrepreneur

3.2.pptx-FACTORS OF PRODUCTION AND PRODUCTION FUNCTION

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