AE-11-Theory-and-Estimation-of-Production (1).pptx

MODULE 8 THE THEORY AND ESTIMATION OF PRODUCTION IGNACIAN/CORE RELATED VALUES : EXCELLENCE :SELF- RELIANCE BIBLE VERSE : ACTS 20: 34 YOU YOURSELVES KNOW THAT THESE HANDS OF MINE HAVE SUPPLIED MY OWN NEEDS AND THE NEEDS OF MY COMPANIONS. 35 IN EVERYTHING I DID, I SHOWED YOU THAT BY THIS KI...

MODULE 8 THE THEORY AND ESTIMATION OF PRODUCTION IGNACIAN/CORE RELATED VALUES : EXCELLENCE :SELF- RELIANCE BIBLE VERSE : ACTS 20: 34 YOU YOURSELVES KNOW THAT THESE HANDS OF MINE HAVE SUPPLIED MY OWN NEEDS AND THE NEEDS OF MY COMPANIONS. 35 IN EVERYTHING I DID, I SHOWED YOU THAT BY THIS KIND OF HARD WORK WE MUST HELP THE WEAK, REMEMBERING THE WORDS THE LORD JESUS HIMSELF SAID: ‘IT IS MORE BLESSED TO GIVE THAN TO RECEIVE.’ ” ADDITIONAL KEY ASSUMPTIONS: FOR THE MANAGER OF A PROFIT-MAXIMIZING FIRM , SEEKING THE MAXIMUM TOTAL REVENUE MAY NOT ENSURE ATTAINING MAXIMUM PROFITS. PROFIT IS THE DIFFERENCE BETWEEN TOTAL REVENUES AND TOTAL COSTS. TOTAL REVENUE DEPENDS ON PRICE AND QUANTITY. FOR A GIVEN PRICE, UNDER COMPETITION , A SUCCESSFUL MANAGER SHOULD AIM AT TWO INTERMEDIATE TARGETS LEADING TO THE FINAL TARGET OF PROFIT MAXIMIZATION : FIRST, IN THE SHORT RUN , TO CHOOSE THE OPTIMAL QUANTITY OF EACH INPUT; SECOND, IN THE LONG RUN, TO CHOOSE THE OPTIMAL SIZE OF THE FIRM OR THE PRODUCTION CAPACITY THAT MINIMIZES THE COST. ADDITIONAL KEY ASSUMPTIONS : THE MANAGER WILL BE ABLE TO TACKLE THESE TARGETS ONLY IF HE HAS ENOUGH AND ACCURATE KNOWLEDGE CONCERNING THE PRODUCTION FUNCTION OR THE INPUT OUTPUT RELATIONSHIPS. THE PRODUCTION FUNCTION : WHAT LEVEL OF OUTPUT SHOULD THE FIRM PRODUCE DEPENDS ON THE PRODUCTION FUNCTION IT HAS , AMONG OTHER THINGS. THE PRODUCTION FUNCTION IS THE TECHNICAL RELATIONSHIPS, WHICH SHOWS THE MAXIMUM ATTAINABLE PRODUCTION LEVELS USING DIFFERENT COMBINATIONS OF INPUT AT A GIVEN STATE OF TECHNOLOGY WITHIN A GIVEN PERIOD OF TIME.  THE RELATIONSHIP BETWEEN INPUTS AND OUTPUT ASSUMES: a. FIXED STATE OF TECHNOLOGY b. EFFICIENT USE OF INPUT COMBINATIONS c. GIVEN TIME PERIOD FOR SIMPLICITY WE WILL OFTEN CONSIDER A PRODUCTION FUNCTION OF TWO INPUTS :LABOR AND CAPITAL. LABOR AND CAPITAL ARE BOTH COMPOSITE INPUTS THAT INCLUDE ALL OTHER FACTORS OF PRODUCTION , SO CONSIDER THE PRODUCTION FUNCTION : Q = F ( X,Y ).  THE EQUATION TELL US THAT THE FIRST PARTIAL DERIVATIVES OF OUTPUT , WITH RESPECT TO EACH OF THE INPUTS ARE POSITIVE ,I.E. Q HAS A POSITIVE RELATIONSHIP WITH X AND Y. THE SECOND PARTIAL DERIVATIVES OF OUTPUT WITH RESPECT TO EACH OF THE INPUTS ARE NEGATIVE, INDICATING THAT THE PRODUCTION FUNCTION HAS SOME MAXIMUM POINT. PRODUCTION DEPENDS ON THE TIME-FRAME IN WHICH THE FIRM IS OPERATING (SHORT RUN AND LONG RUN ). THE RELATIONSHIP BETWEEN OUTPUT AND THE QUANTITY OF LABOR EMPLOYED ASSUMING FIXED CAPITAL , CAN BE DESCRIBED USING THE FOLLOWING THREE CONCEPTS: TOTAL PRODUCT MARGINAL PRODUCT AVERAGE PRODUCT TOTAL PRODUCT IS THE TOTAL OUTPUT IN A GIVEN PERIOD. IN THE SHORT RUN, THE TOTAL PRODUCTION CURVE SHOWS THE MAXIMUM OUTPUT PRODUCED USING A CERTAIN SET OF VARIABLE INPUTS ( AS LABOR AND RAW MATERIALS ) IN ADDITION TO ONE OR MORE OF FIXED INPUTS ( AS THE SIZE OF THE PLANT, EQUIPMENT , AREA OF LAND ). HOWEVER , BECAUSE OF OUR ASSUMPTION , THE PRODUCTION FUNCTION DEPENDS LARGELY ON LABOR AND CAPITAL. HENCE, TO INCREASE OUTPUT IN THE SHORT RUN , A FIRM MUST INCREASE THE AMOUNT OF LABOR EMPLOYED. THE TOTAL PRODUCT CURVE SHOWS HOW TOTAL PRODUCT CHANGES WITH THE QUANTITY OF LABOR EMPLOYED. EXAMPLE : TO UNDERSTAND THE NATURE OF THE RELATIONSHIP BETWEEN THE DIFFERENT MEASURES OF PRODUCTION IN THE SHORT RUN, LET US TAKE AS AN EXAMPLE A SMALL FARM WHERE CAPITAL ( AREA OF THE FARM, WATER WELL AND EQUIPMENT ) IS FIXED, AND THE NUMBER OF WORKERS IS THE ONLY VARIABLE INPUT.  REFERENCE : MANAGERIAL ECONOMICS ECONOMICS TOOLS FOR TODAY’S DECISION MAKERS SEVENTH EDITION , PAUL G. KEATH , PHILIP K.Y. YOUNG , STEPHEN E. ERFLE  QUIZ – NOV. 14, 2023 PART 1 : IDENTIFICATION 1. WHAT EQUATION EXPRESSES THE RELATIONSHIP BETWEEN THE QUANTITY OF PRODUCTIVE FACTOR USED AND THE AMOUNT OF PRODUCT OBTAINED ? 2-3. WHAT ARE THE TWO FACTORS OF PRODUCTION ? 4. IT IS A THEORETICAL OBJECTIVE OF A FIRM WHICH ATTEMPTS TO SELL AT A PRICE WHICH ACHIEVES THE GREATEST SALES REVENUE ONLY WHEN MARGINAL REVENUE IS ZERO. 5. WHAT IS AN INCREASE IN REVENUE THAT RESULTS FROM THE SALE OF ONE ADDITIONAL UNIT OF OUTPUT ? 6. IF A BAKER SELLS BREAD AT P50.00 , WHAT IS THE MARGINAL REVENUE ? 7. IT IS THE TECHNICAL RELATIONSHIPS, WHICH SHOWS THE MAXIMUM ATTAINABLE PRODUCTION LEVELS USING DIFFERENT COMBINATIONS OF INPUT AT A GIVEN STATE OF TECHNOLOGY WITHIN A GIVEN PERIOD OF TIME. 8. A FIRM WHICH 10 EMPLOYEES, WILL PRODUCT HOW MANY UNITS OF OUTPUT , AS LONG AS IT HAS AT LEAST 10 UNITS OF CAPITAL. 9. DEFINES THE RELATIONSHIP BETWEEN ONE VARIABLE FACTOR ( KEEPING ALL THE OTHER FACTORS FIXED AND THE OUTPUT. 10. IT INDICATES THE TIME PERIOD OVER WHICH THE FIRM CAN CHANGE THE QUANTITIES OF ALL THE INPUTS. 11. WHAT REFERS TO THE TOTAL AMOUNT OF OUTPUT THAT A FIRM PRODUCES WITHIN A GIVEN PERIOD UTILIZING GIVEN INPUTS ? 12. DENOTES THE ADDITION OF VARIABLE FACTOR TO TOTAL PRODUCTION. WHICH LEADS TO AN INCREASE OF TOTAL PRODUCT WITH THE HELP OF ADDITIONAL WORKER OR INPUT. 13. OUTPUT PER UNIT OF INPUTS OF VARIABLE FACTORS. 14. AS ADDITIONAL UNITS OF A VARIABLE INPUT ARE COMBINED WITH A FIXED INPUT , AFTER SOME POINT THE ADDITIONAL OUTPUT STARTS TO DIMINISH. 15. WHAT IS THE FULL AMOUNT OF TOTAL SALES OF GOODS AND SERVICES ? 16. WHAT IS THE RESULTING INCREASE IN TOTAL OUTPUT AS ALL INPUTS INCREASE ? 17. IT EXPLAINS THE RELATIONSHIP BETWEEN INPUT AND OUTPUT UNDER THE CONDITION WHEN BOTH LABOR AND CAPITAL ARE VARIABLE INPUTS. 18-20. IF ALL INPUTS IN THE PRODUCTION PROCESS ARE DOUBLED, WHAT THREE THINGS CAN HAPPEN ?