Production Function
Which is law of long run production function?
Law of variable proportions
What is meant by isoquant?
Iso means equal and quant means quantity. Hence the word isoquant implies equal amount of quantities.
Economies are __________ of large scale production.
advantages
__________ is also called cost of production
Accounting cost
________ is a no profit no loss zone
Break Even Point
When total product is maximum Marginal product is _____________
Zero
Higher the isoquant _____________
higher the quantity of production
Growth of technical know how comes under ________ Economies of scale
External
Private cost = ___________
Implicit cost + Explicit Cost
Break even analysis is also called as _________
Producer's surplus
What is production function for short run?
P = f (L, K)
Isoquants are __________ to origin
convex
What is meant by managerial economies of scale?
Managerial economies of scale occur when large firms can afford specialists. They more effectively manage particular areas of the company. For example, a seasoned sales executive has the skill and experience to get the big orders.
Average variable cost is ____________
AVC is the variable cost per unit of production
AVC = TVC/Q
List any 3 assumptions of BEP
Cost function and revenue function are linear
The total cost consists of fixed cost and variable cost.
The selling price of the commodity is constant.
The quantity of output produced is equal to the total quantity of output sold.
The productivity of factors, both average and marginal productivity remain the same.
In long run all factors are variable or constant?
Variable
What is meant by MRSTLK?
Marginal rate of technical substitution (MRTS) is the rate at which a firm can substitute capital with labor. It equals the change in capital to change in labor which in turn equals the ratio of marginal product of labor to marginal product of capital.
MRTS equals the slope of an isoquant.
Frequent breakdowns is en example of _________
Diseconomies of scale
long run average cost is __________
Disc shaped / flatter u shaped curve
Name any 2 benefits of BEP analysis
Quick and easy to compute
Able to assess risk
Explains best case and worst case scenario
Helps in setting targets
Give statement of law of returns to scale
The law of returns to scale states when there are a proportionate change in the amounts of inputs, the behavior of output also changes.
The ridge lines are the locus of points of isoquants where the marginal products (MP) of factors are zero. The upper ridge line implies zero MP of capital and the lower ridge line implies zero MP of labour. Production techniques are only efficient inside the ridge lines. The marginal products of factors are negative and the methods of production are inefficient outside the ridge lines.
Name any 5 diseconomies of scale.
1. Focus of the firm is reduced leading to inefficiencies
2. Management becomes imperfect and costly.
3. Coordinating production becomes difficult.
4. Frequent breakdowns.
5. Workers become less productive.
6. Transportation cost increases.
What is learning cost?
Concept is given by W.Z. Hirsch
It is also known as improvement or progress curve.
It is based on the experience that each time the task is repeated; decreasing amount of labour input is required.
Derive BEP = _________
Profit = TR – TC
TR = total revenue TC = total cost
Profit = P x Q – TC (TR = P x Q)
P = Price per unit Q = Quantity produced
Profit = P x Q – (TFC + TVC)
At Break Even Point TR = TC
P x Q = TFC + TVC
P x Q = TFC + AVC x Q (TVC = AVC x Q)
P x Q – AVC x Q = TFC
Q (P – AVC) = TFC
Q = TFC/ (P – AVC)