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2. Production refers to the
transformation of resources into
outputs of goods and services
FOR INSTANCE : General motors (G.M.) hires workers who use machinery in
factories to transform steel , plastic , glass , rubber , etc into
AUTOMOBILES
Steel + Plastic + Glass + Rubber + Motor parts = CRUZE
PRODUCTION FUNCTION : It’s the functional technical relationship between
physical inputs and outputs of a firm.
P = F [ L, K , S ]

3. Factor of production
In economics, factors of production (or
productive inputs or resources) are any
commodities or services used to produce goods
and services.
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4. FIXED AND VARIABLE INPUTS
• FIXED FACTOR OF PRODUCTION :
• It is defined as the quantity of which cannot be changed in
the short run as the level of output changes e.g. building ,
plants , supply of skilled labour.
• VARIABLE INPUTS
It is defined as the one in which the quantity may be changed
in the short run as the level of output changes. Some
examples are raw material , Labour services.
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5. HOW WILL TOTAL
OUTPUT CHANGE
WHEN ALL INPUTS
EXCEPT FOR ONE
ARE FIXED ?

6. This law states that as one variable
factor is combined with other fixed
factor of production then the
proportion of the factors is changed
and the TP at first rises more than
proportionately , then
equiproportionately , finally less than
proportionately.
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7. (1) Only 1 factor is variable.
(2) All units of variable factors are
same.
(3) Technique of production is
constant.
(4) Factor’s of production can be
used in different proportions.
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8. Title
BEHAVIOR TP MP
STAGE 1 TP increases at increasing Increasing
rate
STAGE 2 TP increases at diminishing BECOMES max & STARTS
rate becomes MAX & falling , becomes ZERO.
CONSTANT
STAGE 3 TP starts falling IT becomes NEGATIVE 8

9. SCHEDULE
Units of Labour TP MP
1 80 80
2 170 90
I Stage
3 270 100
4 368 98
5 430 62
6 480 50 II Stage
7 505 24
8 505 0
9 495 -9
III Stage
10 470 -25
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10. STAGE OF RATIONAL DECISION
THE GREATEST OUTPUT IS AT THE END OF
STAGE 2. THEREFORE STAGE 2 IS IDEAL
BECAUSE THERE IS BALANCE BETWEEN
PRODUCTIVITY AND TOTAL OUTPUT.
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