Research Paper on Economics price theory
Economic Theory of Production
Economic theory of the firm begins with theory of production. What is a firm? The essence of a firm is to buy inputs, convert them to outputs, and sell these outputs to consumers, firms or government. Therefore a firm is poised between two markets. It is a demander in factor markets. It buys the inputs required for production in factor markets (markets that supply inputs for firms). It is a supplier in market for goods and services. It has to adjust its production to satisfy the demand curve of its customers at profit.
It is assumed that the firm or the owner of the firm always strives to produce efficiently, or at lowest cost. He will always attempt to produce the maximum level of output for a given dose of inputs avoiding waste whenever possible.
Production function
The production function is the relationship between the maximum amount of output that can be produced and the inputs required to make that output. Put in other way, the function gives for each set of inputs, the maximum amount of output of a product that can be produced. It is defined for a given state of technical knowledge (If technical knowledge changes, the amount of output will change.)
Importance of the Concept of Production Function
In an economy there will be thousands and millions of production functions because each firm will have one for each of the products that it is making. From the production function, the cost curves of a firm for each of its products can be determined. Contribution of each factor of production i.e., land, land, capital is also determined from production functions. The price that a factor of production will command in the market will be determined by the production functions from the demand side. Total, Average and Marginal Products
Total product or output is the total output produced in physical units by using a set of inputs. It is given by the product function directly. Marginal product of an input is the extra
Economic theory of the firm begins with theory of production. What is a firm? The essence of a firm is to buy inputs, convert them to outputs, and sell these outputs to consumers, firms or government. Therefore a firm is poised between two markets. It is a demander in factor markets. It buys the inputs required for production in factor markets (markets that supply inputs for firms). It is a supplier in market for goods and services. It has to adjust its production to satisfy the demand curve of its customers at profit.
It is assumed that the firm or the owner of the firm always strives to produce efficiently, or at lowest cost. He will always attempt to produce the maximum level of output for a given dose of inputs avoiding waste whenever possible.
Production function
The production function is the relationship between the maximum amount of output that can be produced and the inputs required to make that output. Put in other way, the function gives for each set of inputs, the maximum amount of output of a product that can be produced. It is defined for a given state of technical knowledge (If technical knowledge changes, the amount of output will change.)
Importance of the Concept of Production Function
In an economy there will be thousands and millions of production functions because each firm will have one for each of the products that it is making. From the production function, the cost curves of a firm for each of its products can be determined. Contribution of each factor of production i.e., land, land, capital is also determined from production functions. The price that a factor of production will command in the market will be determined by the production functions from the demand side. Total, Average and Marginal Products
Total product or output is the total output produced in physical units by using a set of inputs. It is given by the product function directly. Marginal product of an input is the extra