PPT MANA PRODUCTION THEORY

PPT MANA PRODUCTION THEORY - Chapter4 ProductionTheory...

Info iconThis preview shows pages 1–12. Sign up to view the full content.

View Full Document Right Arrow Icon
Production Theory Production Theory Chapter 4 Professor K. S. Salmasi Professor K. S. Salmasi
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
OBJECTIVES Explain how managers should determine the optimal  method of production by applying an understanding  of production processes Understand the linkages between production  processes and costs
Background image of page 2
Production Theory Managers must decide not only what to produce for the market, but also how to produce it in the most efficient or least cost manner. The basic production theory is simply an application of the constrained optimization: the firm attempts either to minimize the cost of producing a given level of output or to maximize the output attainable with a given level of cost.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Production and Production Function Production and Production Function Production is the process by which inputs are combined, transformed, and turned into outputs… Production function is a table, a graph, or an equation showing the highest output that a firm can produce for every specified combination of inputs given the state of technology   Alternative Input Combinations Different Quantities of Output Production Process
Background image of page 4
Production  With Two Inputs Discrete Production Surface Q = f (K,L) Q = Output  K = Capital  L = Labour
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Average and Marginal product  of an input Average product of an input = total production (output) divided by the amount of input used Marginal product of an input = the addition to total output resulting from the addition of the last unit of the input, holding constant the amounts of other inputs m a r g i n a l p r o d u c t o f l a b o r = c h a n g e i n t o t a l p r o d u c t c h a n g e i n u n i t s o f l a b o r u s e d a v e r a g e p r o d u c t o f l a b o r = t o t a l p r o d u c t t o t a l u n i t s o f l a b o r
Background image of page 6
Production function Production function Thomas Machine Company Thomas Machine Company Amount of Labour Output of Parts AP Labour MP Labour (annual # of units) (hundreds/year) (hundreds of parts) (hundreds of parts) 1 12 12.0 12 2 27 13.5 15 3 42 14.0 15 4 56 14.0 14 5 68 13.6 12 6 76 12.7 8 7 76 10.9 0 8 74 9.3 -2
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Total, Average, and Marginal  Product Marginal product is the slope of the total product function . At point C, total product is maximum, the slope of the total product function is zero, and marginal product intersects the horizontal axis. At point A, the slope of the total product function is highest; thus, marginal product is highest.
Background image of page 8
Production Function Average and Marginal Product Curves for Labour When MP > AP, AP is increasing When MP < AP, AP is decreasing When MP = AP, AP is at its maximum
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Relation between the average and  marginal product of an input When average product (Q/x) is a maximum, marginal product (dQ/dx) equals average product If x is the amount of variable input that is used, and Q is the output rate, then the Average Product of the variable input is Q/x and the Marginal Product of the variable input is dQ/dx
Background image of page 10
Relation between the average and  marginal product of an input (2)
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 12
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 53

PPT MANA PRODUCTION THEORY - Chapter4 ProductionTheory...

This preview shows document pages 1 - 12. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online