Thye producvtion function shows thje maximum quantity of the output that can be produced per unit time for each set of alternative inputs, given the best available production technology avialble. In the short run at least one of factor of production remains fixed. Fir instance , in the case of an agriculture production function, various alternative commodidties of labour or capital per unit of time may be used in realtion a fixed amount of land. The total product curve increases rate first until the point inflection, after which it starts incresing at a decreasing rate, reches its maximum and then starts decling. The average product labour is then obtailed from toal product divided by the number of units of labour / Capital used. The marginal product of labour represents the change in TP per unit change in the quantity of labour capital used.
The shapes of curve determines the shape of the AP and MP curves. The APl at anypoint on the TPl curve is given by trhe slope of the straight line from the origin to that point on the TP curve. The AP curve usually first rises , reaches a maximum , and then falls, but remains positive as long as the TP is positive. The MPl is equal to the slop of the TP curve, reflecting the change in output due to a unit change in inout betweem the two points. The MP curve is also rise first, reches a maximum and then delines. The MP becomes zero when the TP is maximum. This is the law od dimnishing returns.
If labour is factor input considered , the relationship between the APL and MPL curves can be used to define the three stages of production. Stage I starts from the point where the APl is maximum tot he point where the APL maximum tot he point where the MPL is zero.
Thursday, August 20, 2009
DEMAND ANALYSIS AND FORECASTING
Demand is crucial fr the survival of any business enterprises. A firm's own profit and or sales depend mainly upon the demand for its product. A management's decision on production, advertising, cist collenction, pricing inventory holdings, etc.all requires an anlysis of demand. Demand anlysis attempts to identify and measure the factors that determine sales, on the basis of which alternative methods of manuplating or managing demand can be worked out. Demand forcating attempts to estimate the expecterd future demand for a product, which helps to plan production better. In this context, it is important to understand the types and determinants of demand and their relative importance Demand is broadly classified is :
THEORY OF DEMAND
The theory and anlysis of demand provides several useful insights for business decision making. Demand for a commodity is defined as the quanity a consumer is willing to purchase at the prevalling price, given sufficient purchasibng power or income for that purpose. As against the demand of an individual consumer or house hold, the manager of a firm may consider the market demand which is the aggeregation of demand levels of all the consumers at a given price.
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