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Production: what is ‘production’?
Published on August 29, 2019 24 min
Other Talks in the Series: Introduction to Microeconomics
What are the different types of costs and revenues?
- Dr. Sangaralingam Ramesh
- University College London, UK
Hi I'm Dr. Sangaralingam Ramesh. Welcome to Talk Number 10 in this Henry Stewart Talks "Introduction to Microeconomic" series. In this talk, we'll be looking more closely at the firm's production and seeking to answer questions such as what is production and how does it vary between the long run and the short run. In this talk, we'll be putting together many of the different types of analysis that we've been looking at in previous talks, and we start off with looking at the production function.
So in a previous talk, we define the production function as being mathematical taking the relationship between the quantities of capital (K) and labor used to produce the maximum level of output Y for a specific level of technology. This production function gave rise to isoquants which we looked at when we were looking at how firms optimize their production behavior by reaching the highest possible isoquant represented by a production function for a given budget.
We've also defined the short run and the long run in the context of a firm's production, where in the short run we say that the amount of capital that the firm uses in production for example machines and the number of factories remains fixed but the firm can vary the quantity or number of workers (L) it employs and uses in production. On the other hand in the long run, we can depict as a period of time in which the firm can change both the quantity of capital (K) the amount of machines and factories use in production, as a number of workers (L) it employs. So in the long run, the firm can negotiate contracts with suppliers to buy more machines, it calls and negotiate to buy more land in order to build more factories. So therefore in the long run, the firm's production is much more flexible than it is in the short run. So in the long run, we'll say that the firm's production supply more elastic. Whereas in the short run, the firm's production and supply of goods tends to be less elastic.