Eco 2

1.
WHAT IS PRODUCTION AND PRODUCTION FUNCTION
Production is a process of combining various material inputs and

immaterial inputs (plans, know-how) in order to make something for
consumption (output). It is the act of creating an output, a good or
service which has value and contributes to the utility of individuals.
• Production function: law of diminishing returns-returns to

scale–productivity- aggregate production function-productivity
growth from economies of scale & scope; Cost: total cost -average cost- marginal
cost;Revenue: total revenue-average revenue-marginal
revenue.
The production function is expressed in the formula: Q = f(L, L, C,
O,T.........),
2.WHAT ARE FACTORS OF PRODUCTION ? GIVE ITS IMPORTANT
Land - rent
Labour - wages
Capital - interest
Organisation - profit
3.STATE THE LAW OF VARIABLE PROPORTION
It is also known as law of Diminishing Returns.

According to Stigler, “ As equal increments of one input are added, the
inputs of other productive services being held constant, beyond a
certain point, the resulting increments of produce will decrease i.e.
marginal product will diminish”.
According to Samuelson,” An increase in some inputs relative to other
fixed inputs with in a given state of technology cause output to
increase, but after a point, the extra output resulting from the same
addition of extra inputs will become less”.
4.STATE THE LAW OF RETURNS TO SCALE
1)The law of returns operates in the short period. It explains the

production behavior of the firm with one factor variable while other
factors are kept constant.
2)The law of returns operates in the long period. It explains the
production behavior of the firm with all factor variable.
5.DISTINGUISH B/W FIXED FACTOR AND VARIABLE FACTOR
6.WHAT IS COST
• In business, cost is the monetary value that has been spent by a
producer in order to produce something.
•In business, cost expresses the amount of money that is spent on the
production or creation of a good or service. Cost does not include a
mark-up for profit.
7.EXPLAIN THE RELATIONSHIP B/W AVERAGE COST AND MARGINAL REVENUE

8.WHY IS AVERAGE COST CURVE IS U SHAPED CURVE
The average cost curve is u shaped because the average cost curve decreases at the
beginig and slowly increases.
9. STATE WHAT ARE BEHAVIOURAL COST

Total Cost= Total Fixed Cost + Total variable Cost
Total Fixed Cost= Total Cost- Total variable Cost
Total variable Cost = Total Cost- Total Fixed Cost
Average Cost=Average Variable cost +AFC or TC/Q
Average Fixed cost= Average Cost- AVC orTFC/Q
Average Variable cost=Average Cost – AFC or TVC/Q
Marginal Cost= Total CostN -cost N-1
10.WHAT IS ECONOMIES TO SCALE

Economies of scale are cost advantages reaped by companies when
production becomes efficient. Companies can achieve economies of
scale by increasing production and lowering costs. This happens
because costs are spread over a larger number of goods. Costs can be
both fixed and variable.
Economies of Scale refer to the cost advantage experienced by a firm
when it increases its level of output.
11.WHAT IS INTERNAL ECONOMIES TO SCALE?
Internal economies of scale happen when a company

cuts costs internally, so they're unique to that
particular firm. This may be the result of the sheer
size of a company or because of decisions from the
firm's management. Larger companies may be able
to achieve internal economies of scale—lowering
their costs and raising their production
levels—because they can buy resources in bulk,
have a patent or special technology, or because
they can access more capital.
12. WHAT IS EXTERNAL ECONOMIES TO SCALE
External economies of scale, on the other hand, are achieved because
of external factors, or factors that affect an entire industry. That
means no one company controls costs on its own. These occur when
there is a highly-skilled labour , subsidies or tax reductions, and
partnerships and joint ventures—anything that can cut down on
costs to many companies in a specific industry.
13.MENTION ANY THREE DISECONOMIES TO SCALE

i. Employee cost
ii. Communication failure
iii. Administration cost
14.WHAT IS REVENUE . EXPLAIN ITS CONCEPTS

The term revenue refers to the income obtained by a firm through
the sale of goods at different prices. In the words of Dooley, ‘the
revenue of a firm is its sales, receipts or income’.
The revenue concepts are concerned with Total Revenue, Average
Revenue and Marginal Revenue.
15. RELATIONSHIP B/W AR AND MR
1.PERFECT COMPETETION MARKET

UNITS TR AR MR
1 10 10 10
2 20 10 10
3 30 10 10
4 40 10 10
5 50 10 10
2.IMPERFECT COMPETITION
UNITS TR AR MR
1 10 10 10
2 18 9 8
3 24 8 6
4 28 7 4
5 30 6 2

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1.

WHAT IS PRODUCTION AND PRODUCTION FUNCTION

Production is a process of combining various material inputs and

• Production function: law of diminishing returns-returns to

2.WHAT ARE FACTORS OF PRODUCTION ? GIVE ITS IMPORTANT

3.STATE THE LAW OF VARIABLE PROPORTION

It is also known as law of Diminishing Returns.

4.STATE THE LAW OF RETURNS TO SCALE

1)The law of returns operates in the short period. It explains the

5.DISTINGUISH B/W FIXED FACTOR AND VARIABLE FACTOR

7.EXPLAIN THE RELATIONSHIP B/W AVERAGE COST AND MARGINAL REVENUE

9. STATE WHAT ARE BEHAVIOURAL COST

10.WHAT IS ECONOMIES TO SCALE

11.WHAT IS INTERNAL ECONOMIES TO SCALE?

Internal economies of scale happen when a company

13.MENTION ANY THREE DISECONOMIES TO SCALE

14.WHAT IS REVENUE . EXPLAIN ITS CONCEPTS

15. RELATIONSHIP B/W AR AND MR

1.PERFECT COMPETETION MARKET

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