Pollution Control Board Analysis & Implementation Issues

[Virtual Presenter] Welcome Theory of Production.

[Virtual Presenter] 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. The factors of production such as Land, Labour, Capital, Technology ,etc Inputs The goods and service produced such as Soap, Omni Car ,etc Outputs.

[Virtual Presenter] 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).

[Audio] Factors of Production Natural resources such as surface, mineral , air, rivers, sea, etc Free gift of nature, fixed Land Mental or physical effort done by a man with the view of Labour Man made goods used in the production process Most mobile factor Capital Entrepreneur or coordinator of all other factors of production Organization.

[Audio] Inputs : Fixed inputs and Variable inputs  The factors of production that is carry out the production is called inputs.  Land, Labour, Capital, Organizer, Technology, are the example of inputs Inputs Factors Variable inputs Fixed Inputs.

[Audio] Inputs : Fixed inputs and Variable inputs Fixed inputs Variable inputs ❑ Remain the same in the ❑ In the long run all factors short period . ❑ At any level of out put, the of production are varies according to the volume of outputs. amount is remain the same. ❑ The cost of variable inputs ❑ The cost of these inputs are is called Variable Cost called Fixed Cost ❑ Example: Raw materials, ❑ Examples: Building, Land labour, etc etc ❑ ( In the long run fixed inputs are become varies).

[Audio] Various concept of production Total Product Average Product Ratio of Total Product and one variable inputs Marginal Product – The rate of change of out put as a result changes in one variable input.

[Audio] Short run Production Function with Labour as Variable factor Average Marginal Product Labour (L) Capital (K) Product (A-P---) (M-P---) Total Output (T-P---) 0 0 10 10 1 10 30 2 10 60 3 10 Production with One Variable Input 80 4 10 95 5 10 108 6 10 112 7 10 112 8 10 108 9 10 100 10 10.

[Audio] Short run Production Function with Labour as Variable factor Marginal Product Labour (L) Capital (K) Average Product (M-P---) Total Output (T-P---) (A-P---) 0 10 0 10 1 10 10 10 20 2 10 30 15 30 3 10 60 20 Production with One Variable Input 20 4 10 80 20 15 5 10 95 19 13 6 10 108 18 4 7 10 112 16 0 8 10 112 14 -4 9 10 108 12 -8 10 10 100 10.

[Audio] D 112 Output per month Total Product C B 60 A Labor per month 3 4 8 30 E 20 Average product 10 Labor per month 3 8 4 Marginal product.

[Audio] Law of Production Function 1) Laws of Variable proportion Law of Diminishing Return ( Short run production function with at least one input is variable) 2) Laws of Return scales – Long run production function with all inputs factors are variable..

[Audio] 1. Law of variable proportion: Short run Production Function  Explain short run production function  Production function with at least one variable factor keeping the quantities of others inputs as a Fixed.  Show the input out put relation when one inputs is variable “If one of the variable factor of production used more and more unit,keeping other inputs fixed, the total product(T-P---) will increase at an increase rate in the first stage, and in the second stage TP continuously increase but at diminishing rate and eventually TP decrease.”.

[Audio] Short run Production Function with Labour as Variable factor Land Marginal Product Labour (L) Capital (K) Average Product (M-P---) Total Output (T-P---) (A-P---) 10 0 10 0 10 10 1 10 10 10 First Stage 20 10 2 10 30 15 30 10 3 10 60 20 Production with One Variable Input 20 10 4 10 80 20 15 10 5 10 95 19 Second Stage 13 10 6 10 108 18 4 10 7 10 112 16 0 10 8 10 112 14 -4 10 9 10 108 12 Third Stage -8 10 10 10 100 10.

[Audio] D 112 Output per month Total Product C B 60 A Labor per month 3 4 8 30 Second Stage Third Stage E 20 Average product First Stage 10 Labor per month 3 8 4 Marginal product.

[Audio] Stages in Law of variable proportion First Stage: Increasing return TP increase at increasing rate till the end of the stage. AP also increase and reaches at highest point at the end of the stage. MP also increase at it become equal to AP at the end of the stage. MP>AP Second Stage: Diminishing return TP increase but at diminishing rate and it reach at highest at the end of the stage. AP and MP are decreasing but both are positive. MP become zero when TP is at Maximum, at the end of the stage MP<AP. Third Stage: Negative return TP decrease and TP Curve slopes downward As TP is decrease MP is negative. AP is decreasing but positive..

[Audio] Where should rational firm produce?. Where should rational firm produce?.

[Audio]  Stage 1: MP is above AP implies an increase in input increases output in greater proportion.  The firm is not making the best possible use of the fixed factor.  So, the firm has an incentive to increase input until it crosses over to stage 2.  Stage 3: MP is negative implies contribution of additional labor is negative so the total output decreases .  In this case it will be unwise to employ an additional labor..

[Audio]  Stage 2: MP is below AP implies increase in input increases output in lesser proportion.  A rational producer/firm should produce in stage 2.  But where exactly the firm will operate within stage 2 cannot be determined only on the basis of the product curves.  We need information about input costs and price of output..

[Audio] 2. Law of return to scales: Long run Production Function  Explain long run production function when the inputs are changed in the same proportion.  Production function with all factors of productions are variable..  Show the input out put relation in the long run with all inputs are variable. “Return to scale refers to the relationship between changes of outputs and proportionate changes in the in all factors of production ”.

[Audio] Law of return to scales: Long run Production Function Labour Capital TP MP 2 1 8 8 Increasing returns to scale 4 2 18 10 6 3 30 12 8 4 40 10 10 5 50 10 Constant returns to scale 12 6 60 10 14 7 68 8 Decreasing returns to scale 16 8 74 6 18 9 78 4.

[Audio] 1. Law of return to scales: Long run Production Function Inputs 10% increase – Outputs 15% increase Increasing returns to scale Constant returns to scale Inputs 10% increase – Outputs 10% increase Inputs 10% increase – Outputs 5% increase Decreasing returns to scale.