< Theory of Production & cost >

Production

Busi survival :
ability to produce @ competitive cost

optimal in cop↓
efficiency making
:

Prod level ↑
Economy
"

performance
:

Rich 1 Poor
:
country volume
:
citizen's standard
of Living <
variety
transform
Production Use resources
commodity /
• =

services
M , M , C Time
,

↓
human wants
satisfy
James Bates + TR Parkinson :
organized activity
•

transform res fin Product

↓

satisfy demand .

Matter create ✗
}
•

only add
utility
:

Law Science
of
 Processes of Production : +
utetdyadd .

Form Place
Making personal stall
change available
change
.
.

ie on non ( time labor

utility add
season teacher

front
-

merchant
conferring conferring
utility oguhbtygtime
of firm eg
canning
.

moving goods
Intangible
Extract from Nosabfadñn lileldy
from earth Place
+ to
high satisfaction
supplymkt

⑨Each stage
= *
utility enhancement

FOP
=

Inputs an active participation

Prodn process in modern
Economy Complex
-
•
→
.

Freeciftfop human
↓
hand
{ c. E
 Land
nature
not only soil
free gift of
all resources
- -
◦ .

• which took no human effort

• no supply price from nature

inelastic whatever is the Price

Fixed Perfect
•
: :

oty cant be increased .

◦
permanent ,
indestructible • Passive → human needed
•
immobile
multiple uses
, heterogenous _

transom

◦
mental / physical exertion
here ×
• to get income + pleasure
• skill too .

• psychological concerns
for this Fop → labor , good boatmen ,
wages
◦
perishable - l
day lost return ✗

• active for land , capital

• Labor -
Labourer inseparable .

power / capacity ) efficiency

"
•
Diff
◦ Notalevays productive
 Poor ↓ Reserve Prices Mobile
Bargaining
-

adjustment of to Demand Slow ☆

supply
• →

Peculiar Backward
•

Bending Shape
Labor can choose Leisure Labor hrs

]
= .

p
P wage rated supply upto a desired

Leueloglncome
→
supply Then Rest

Produced ogpsodnlfop
c Capital : mean

Individual ☒ wealth → Part → Used for further Production

capital income

• Stock • flow
concept concept
→ wealth Cmaybeidleako .

Capital ( Past used )

→
of wealth

Land Labor
,
:

Primary long Poetess

Capital : Produced .
 capitaltypes

tangible individual
Fixed circulating Real hunch = =

tools Physical skill 5 sensed put

single
- use
.

property
_

can
durable shape .
_
seed, Build'Y creation
- -

Rawmat perceive
PIM
.

takes
-

|
time

social
Belong
to

intangible society
-

copyright ipalmt Loads .

OR investment
Capital formation
sustained
•
country real
stock
capital → increase .

•
Capital goods creation →
further used for consumergoods .

• Uses -8-7
Replacement Guprenovahin
NO additional productive capacity
channetese
•
Current consumption sacrifice . +
saving .
→
productive
investment
 current resource

✓ →
consumer

good cutdowncuventconsunph
-

loot . ↓
I

nocapilél
-
make capital goods .

capital formation
Stage :

saving mobilisation
=
ln¥tment
ABNM=
Basiacumostimp ◦ "ʳᵈᵈᵗʰ Real
saving

{ ]
savingsA ( finfin ) dawns
→ Income ↑ ✗ Products into
+ Institutions
because ppc↓ Real capital
&
Precondition Assets
'

↓
bath
for individual -

ByRisk
network to New venture
economy
+ . ◦ -

collect
* + take to investors .
-

Enllipoenelerilclass .

Willmann • Stalemate -
Fiscal
concern abt future monetary Policies .

1-
social
•
fllsein Needs 1- Cap formation
. 2in /

setup Tax
Deductions
•
farsighted Uovtcompillsion
,
- PPF ,
eent-repreneuromobilises.at
{
factors
organiser
→ combines :
right proportion +
manager
+ initiates production + Ristetaher

+ Risk

)
•

ownership ≠ management Company

vs eenlñpreneun
Management
•

↓ ↓

decision Jnetoteces
making Bear Rich
1- Routine work
+ nonroutnewnk .

function

initiate
•
sense
opportunity RiskB@ Innovation
conceive idea
planned /anticipated
•

• decide scale SOA

•
◦
Schumpeter
•
manage
ttruedeeeto = True function
•
Initiate /I. work

•
-

difffopcozdenate
•

Dynamic
taste ,
costs ◦ New idea
• Bring Yield fashion .
•
 uncertainty not just
- •

◦ hires services + pays all .

.
= risk New idea
.

• his Reward --
Profit ↓ But
(I -

E) ① Financial Risk • new idea

Reward ② Technological * commercial
◦
not fixed .

Risk application
• Lily incase
of profit ( obsolete tech)

Benefits
◦
FrankK=gkt
efficiency
-

profit is Reward
of
Rish
-

competition ed

th -
Profits
Risk → insure ✓ -

Economic
growth
Uncertainty insurer
→

• imitated
(taste ,
preference competition)
, ie

copied .

✓all
Delegation
↓
⑨ _

except Risk bearing

i. Short
Term
Profit
By Innovating

terry I

{
◦
few innovators

Innovating Supply Of Entrepreneurs

}
.
•

✗
Ability gear .
*
progress ofcountsy
 Enterprise →
Objective & Constraint

1-
only profit maximisalion motive .

for survival ⑤ objectives

◦
+
growth

1-
orgasmic
• Basic + minimum = survive .
→
produce + distribute + recover

profit
cost .

creditor employees
meet
obligation → .
= ,

cost 7 Revenue :

Bankruptcy .

* Survival Growth

•
Growth →

responsibility
Managers
RLMam
theoryoffo.MN
→ •

Goal of manager =
Maximise Balanced gwth
funder
-

managerial constraint
-

financial
 Vs management structural division
•
ownership .

managers set dtffn goal ≠ Utility function of

ire
utility function owner

share
{ profit + capital + mkt
+ reputation >

Manager
◦

Ability →
performance in promoting growth
→
Expansion .

Manager
Ulf
•
MERGE
Singa steady growth
variable in
size
owner
.

uyp

# conclusion

aim
optimise profit Balanced Rate of asouth
.

manager
→

opltmid rise in demand

rate
of
→ .

→
, , ,
,
capital supply
 Enterprise Objective No -2

.
Economic •

after survival : now growth & profit

• Neoclassical Economic Theory →

pftmax .

• Price a output maximise profit

within constraints → tech / finance .

investor dividend + price ↑

•
profit needed for → creditor potable enterprise relation
[ employee
→

→ hike

accounts : TR - K only explicit cost

→
•

Profit Definition economics : TC →

exploit
+

implicit
-

self owned
factorcost
ecopft ≤ profit
'
- -
ace .

ieopp.cat

•
Mpft • Economic / abnormal
plot
= 0 Economic profit
> normal pft
minimum to continue
necessary
=

TRZTC
=

owners cost too

 •
pft maximise = not all firms

achieve
some
security
.
◦ =

Foims
HA Simon sate spicing behaviour
= →
•

strive for sclatisfaetorg profit

◦ Baemcd
Theory → sales maximise .

goal
not pftmak .

Not
ignore
cost a profit

•
1932, A- A. Berle Eecrc → Mgmt ≠ ownership
discretionary
→
manager power
→ .

leg dlsectoroy 6)

• Williamson's Model
→ owner want pftmax
of maxinesation of
managerial Utility function
But
manager want utility function
maximise subject to minimum

profit
-

& this is
imp contribution
.

to
fair's Behaviour
Managerial Theory of
 Economic Objective continued . . .

Utility Maaembation
objective
2
types of films
joint-stock co towner managed
foim owned - 0 s

+managed ↓

By entrepreneur .
•
profit to shareholders
↓
• Produces upto a level
•
sales promote
•
large staff 9 Office .

✓\ •
production goal
high profit sacrifice inventory a

leisure Sales
goal
_*
.

mashdshase goal .

•--☆ Profit
goal

-
Gert 4 March
By

③ Organic ☆ Economic > SOUAL

sctandard
unadultered goods orality
• •
.

antisocial
•

activity