week 8 chapter 3 : PRODUCTION AND COST

Definition of production

process of using factors of production to produce goods or service.

*In other words, the transformation of inputs into outputs. Inputs is firm buy for use in production process such as land, labour, capital and entrepreneur.*

Short-run and Long-run Production

• Short-run period-one of the inputs is fixed but the other inputs are varied.
• Long-run period-the time frame in which all inputs are variable.

Types of Production

    1.Commercial services

       -Industries engaged in the movement of commodities so that they reach the final consumer on time,in good condition and in the correct quantity.

    2.Direct services

      -Services not rendered to material good s, as in commerce, but to persons and they are very                   important to the production process because they increase efficiency.

Law of Diminishing Marginal Returns

If the quantities of certain factors are increased while the quantities of one or more factors are held constant.

Total product (TP) is the amount of output produced
Average product (AP) is can be obtained by dividing the total product
Marginal product (MP) is the change in the total product of hat input corresponding an addition.

Relationship between Total Product (TP) and Marginal Product (MP)

• When MP is increasing, TP will increase at an increasing rate
• When MP is decreasing, TP will increase at a decreasing rate
• When MP is zero, TP is at its maximum.
• When MP is negative, TP declines.

Relationship between Marginal Product (MP) and Average Product (AP)
  

• When MP is above AP,AP is increasing.
• When MP is below AP, AP is decreasing.
• When MP equals to AP, AP is at maximum.