企业理论46579.pptVIP

The Theory of the Firm The Theory of the Firm Production Function Production Function States the relationship between inputs and outputs. Inputs – the factors of production classified as: Land – all natural resources of the earth – not just ‘terra firma’! Price paid to acquire land = Rent Labour – all physical and mental human effort involved in production. Price paid to labour = Wages Capital – buildings, machinery and equipment not used for its own sake but for the contribution it makes to production. Price paid for capital = Interest Production Function Analysis of Production Function:Short Run In the short run at least one factor fixed in supply but all other factors capable of being changed. Reflects ways in which firms respond to changes in output (demand). Can increase or decrease output using more or less of some factors but some likely to be easier to change than others. Increase in total capacity only possible in the long run Analysis of Production Function:Short Run Analysing the Production Function: Long Run The long run is defined as the period of time taken to vary all factors of production. By doing this, the firm is able to increase its total capacity – not just short term capacity Associated with a change in the scale of production The period of time varies according to the firm and the industry. In electricity supply, the time taken to build new capacity could be many years; for a market stall holder, the ‘long run’ could be as little as a few weeks or months! Production Function Mathematical representation of the relationship: Q = f (K, L, La) Output (Q) is dependent upon the amount of capital (K), Land (L) and Labour (La) used. Costs Costs In buying factor inputs, the firm will incur costs Costs are Classified as: Fixed costs – costs that are not related directly to production – rent, rates, insurance costs, admin costs. They can change but not in relation to output. Variable Costs – costs directly related to variations in output. Raw materia