Group MembersZia Khan 009Atif Faryad 023Naveed Anjum 043Mudasser Iqbal 050Hamza Dar 057

TOPIC OF PRESENTATION

Theory of Production

Outline Introduction Production Production Functions Factors of Production Pricing of Factor of Production Types of production Concept of Production Conclusion

Introduction

“Production theory is the study of production, or the economic process of converting inputs

into outputs”

Production“Production is the act of producing good and services which fetch a price in the market”

Example: The process of production of

ARMANI’s JEANS.

Production FunctionProduction function shows technical process in which inputs are transform into output. In an optimum way during a specific period of time.

Q=ƒ (L,K) Q= Output L= Labour K= Capital

•The part of the earth's surface that is not covered by water and used in business production

Land

•The aggregate of all human physical and mental effort used in creation of goods and services

Labour

•Financial assets or the financial value of assets, such as cash, the factories, machinery and equipment owned by a business and used in production

Capital

•Organization is an arrangement of people in a specific place for specific purpose during a period of timeOrganizatio

n

Factors of Production

Pricing of factors of production

Land Rent

Labour Wages

Capital Interest

Organization Profit

Types of production• In this type Land, Capital and Organization are

fixed factor of production while Labour is variable factor.

• Its time period is one year or less. • Example :- Seasonal Industry (Ice factory).

Short run

• In this type all factors of production are variable.• Its time period is more than one year.• Example:- Textile Industry. Long run

Concepts of productionTotal Product (T.P)Marginal product (M.P)Average Product (A.P)

Total ProductTotal output produced by employing all units of

inputs.

Formula: T.P = Output units produced Input used

Marginal productNet addition to the total product by employing

an additional unit of input.

Formula:

MPL = dTP

dL

Average ProductOutput per unit of input is called average

product. Formula: APL = TP L

Table

Production with One Variable Input

012345678910

1010101010101010101010

01030608095108112112108100

_10203020151340-4-8

_10152020191816141210

Short run Production Function with Labour as Variable factor

Labour (L)

Capital (K)

Total Output (TP)

Average Product

(AP)

Marginal Product

(MP)

A

C

B

Total Product

Labor per month

3

4 8

84

3

E

Average product

Marginal product

Output per month

112

Labor per month

60

30

20

10

D

Conclusion By the above discussion we can

concluded that production theory play a vital role in the success of any organization. As it helps in pricing of commodity or product of an organization. Because it tells us about the cost of factor of production, which an organization bear to produce a product or commodity.