Learn CBSE Economics Index Terms for Class 12, Part 1, Chapter 3 Production and Costs
1. Cost of Production – Cost of production refers to the cost of labour, materials, equipment, and other costs incurred by a firm to produce a certain output. Cost of production is the total costs of a firm’s production. It is also known as the all-in factor or market price of output.
Cost of production is a term that refers to the cost incurred in bringing a product to market. This includes direct costs, such as raw materials and labour, as well as indirect costs, such as transportation and distribution.
All elements of production, such as labour and the capital that workers use – factories, machinery, tools, etc., are combined in the price of production.
2. The Law of Diminishing Marginal Product – The law of diminishing marginal product is the principle that the average product of a factor will fall as the amount of that factor used rises. In other words, when producing a quantity of a good or service, it will not make sense to increase the inputs (such as expenditures in labour) because this would mean increasing the variability in output; instead, it makes sense to reduce input costs through economies of scale.
The law of diminishing marginal product states that the marginal product of factors of production will decrease over time for a given level of output. The law implies that a firm is better off if it produces fewer units of output, if marginal costs are constant and if prices are held fixed because lower prices alone can increase profits.
The law of diminishing marginal product is a result of increasing opportunity costs as additional inputs are added to production. The law states that the total benefit from an additional unit of input decreases as more units are added to production. This, in turn, means that products become cheaper as producers add more output per unit cost and are less valuable/useful.
The diminishing marginal product represents the dependence of the productivity of employment on the amount of capital used in a production process.
3. Firms – A firm is an organisation with a regular inventory of fixed capital that can be bought, sold, and reused in repeated operations. Some firms are close to the consumer and produce many different products, while others may be located far away from the consumer, producing just one or a few items. As firms expand and market share increases, they come under pressure to expand further. The threat of entry by new firms into an industry can present a barrier for established companies, which wish to limit competition.
A firm is the basic unit of production in a capitalist economy. The word “firm” derives from old English, which means fastening together or to be firm. In other words, firms are those business entities that have an elaborate structure and a centralised command economy.
A firm is a body of people with similar rights and duties, the pooling of capital that provides income, and the power to decide how capital should be used.
A firm is an organisation of people, as distinct from an association of natural persons, not forming a legal person.
4. Revenue – Revenue is defined as the financial benefit received from an activity or service. If one sells products for Rupees 20 and makes a profit, then the revenue is Rupees 20.
Revenue is an income or gains from a business activity, often expressed in terms of a real number. In accounting, the revenue per unit time metric is the amount of money generated by an activity for which there is little to no consideration for any costs involved in producing or providing said activity.
Revenue is the income to which a business is entitled or entitled to get. It can be seen as a share or percentage of income or net profit that the business can expect to receive.
Revenue is the amount one gets for a product or service versus what it costs one to produce that item or provide one’s service. Revenue can be viewed as people spending money on purchasing items or services, with the amount they pay including not just what they paid but also the time and effort that went into processing and delivering those customers’ purchases. As such, revenue is a measure of economic activity generated by businesses or consumers.
5. Short Run – A short run is a period of time in which all variables are held at a steady state. Short-run economics is the study of the performance of an economic system during a certain period of time when compared to other periods and comparing different variants.
In economics, a short-run consists of one production period. The word “short” means that this is the most immediate production period and not the long run.
A short run is a period of time when the variables are changing, and all of the effects are known. A Short Run Aperiodic Process (SRAP) is a stochastic process that exhibits periodic behaviour. It is defined formally as a random process that satisfies time and other variables.
6. Long Run – A long run is a period of time in which an economic theory or model is tested. For example, a long-term business plan is one that attempts to predict the state of the economy over several years.
Long-run and short-run economics are two variables used within the field of economics. The long-run term refers to the long time period during which economic activity occurs, and the short run means that the time period is immediate or the exact time of an event.
The long run is the time period over which one’s decision would apply but is too abstract to be tested. In terms of forecasting, this means that the model will not be tested with actual data from the past.
This is a long-term perspective on the production of a good, including both the costs and revenues involved with its production and consumption. Economic analysis tends to take this long-run approach in situations where producers have the ability to adjust their production and consumption quantities up or down in response to future prices and costs. For example, consumers could choose to switch consumption to less expensive products during periods where inflation is low.
7. Cost Function – Cost functions in economics are functions that measure the economic cost of economic activity or production. This includes aspects such as opportunity costs, the investment required, and the amount of energy used.
A cost function is a formula that expresses the prices of goods or services as a function of their quantities. A cost function expresses the total cost of producing some variable in an industry. For example, a firm in a competitive industry might have a cost function that measures its marginal revenue times the price.
A cost function expresses the relationship between a dependent variable (for example, cost, goal, profit) and one or more independent variables (for example, input, output, factor).
8. Total Product – In economics and business, a total product is the sum of all an organisation’s outputs or the final result produced by the use of its inputs. A total product is the sum of all outputs plus the average value each output has within a country or industry.
A total product is the value of all goods and services that can be produced from the resources used to produce them during a specified period of time. For example, if a car factory produces 100 different cars, and is also producing its own services (for example, designing, maintaining, and repairing) and selling these 100 cars, then the total product equals the value of all 100 cars as well as their associated services.”
A total product is the sum of all final goods and services produced by an economy over a certain period of time. Total output includes all outputs in the production process, but it does not include all intermediate inputs between the finished goods and services, nor does it include final consumption goods and services.
9. Average Product – An “average product” refers to the total value of a product or service produced by an economic firm over time, and it represents the average of all daily, weekly, monthly, and yearly totals.
The definition of “average product” is a simple concept yet effective. It’s the amount by which all costs are divided when determining the cost per product. In economics, this can be defined as dividing a total cost by total produced products to find an average cost for each produced commodity.
The average product of a national economy is the total value of all produced goods and services in an economy. It represents the central concept in economics, measuring the output (the total value of goods and services) per worker employed in the sector.
The mean, in statistics, of a distribution of scores on a metric, such as income or years spent in school.
10. Returns to Scale – Returns to scale is a term in economics and business management that refers to the factor of production that affords the highest amount of output, by way of higher production or sales, when improved efficiency is added to a company. This increase in efficiency will lead to a greater level of profit or “returns” that can be earned by the company.
Returns to scale is the percentage gain or loss that results in taking a larger or smaller quantity of any good. It’s important to know returns to scale because it shows how much one can sell an item at a profit.
Returns to scale, in economics, are the increases in product volume that can be achieved with increased scale. This is done by expanding production processes by adding new equipment to produce more goods with the same labour and capital investments. Returns to scale allow commodities to be produced using fewer inputs per unit of output of a commodity over time. When returns to scale exceed inputs, economies of scale take effect. If a product requires less labour and capital than the cost of production, it will have a higher profit margin.
Returns to scale is a correlation between the increase in output and input use that occurs when a firm moves from an independent production stage to the joint-product stage due to the integration of resources. The benefits are the improvement of efficiency and productivity.
11. Marginal Cost – Marginal cost is the cost of an additional unit produced or sold. The marginal cost is less than the average variable cost because it includes only those costs that are directly attributable to a product considered to be sold. It assumes that there are no fixed expenses, or in other words, that fixed expenses cannot be increased because one has already made their decision on a certain quantity and one does not want to increase their fixed expenses for that specific item. Marginal cost is the change in the total cost for a firm that results from the production or sale of one additional unit.
Marginal cost is, for a given initial amount of activity, the cost of the next unit or quantity. Marginal costs, unlike marginal revenue, are seldom directly measured because they are based on supply and demand, not volume. Economists analyse prices in terms of quantities sold or units produced by an entity (for example, in economics, price = marginal cost).
Limiting oneself to those essentials that one needs, rather than the ones one wants, will help one save money. In economics, marginal cost is the cost of adding another unit of a good or service. The marginal cost of creating more services or goods is what it costs one to produce another unit of that particular good or service.
12. Average Cost – In economics, the average cost is a measure used to determine the total cost of a business. It is often estimated by summing up all the product costs over time and then dividing it by the total number of units produced.
The average cost is the sum of all costs incurred to produce an item. This can refer to the total outlay for all materials and production labour, or it can refer to what a company spends on each product in one period of time (say, a month).
The average cost is the amount of time and money required to produce an item. The average cost is the total cost of a production process divided by the number of units produced. It is often used in business, economics and statistics to measure the “economies of scale”, which create cost advantages when large numbers of a product or service are produced at one time.
13. The Law of Variable Proportion – The law of variable proportion is a concept in economics. It states that the proportion of different kinds of goods or services produced at a given time and place depends upon their price, the aggregate demand for them, the number available, and their productivity.
The law of variable proportion is a law of economics that states that when a price changes at equal, fixed levels of the quantity sold and the amount purchased, the change in price results in an equal change in quantity. The law implies if a consumer doubles their consumption and then cuts it by 5 %, one should get close to what one would with a change to zero consumption.
The law of variable proportion states that the productivity of a variable input depends on the proportion of the variable input in relation to all other inputs. This means that a change in the ratio of input can have a significant effect on its output.
The law of variable proportion (or the law of diminishing returns) explains that, as a result of the law of diminishing returns, there exists a point at which increasing amounts of capital or supply become less and less productive.
We hope that the offered Economics Index Terms for Class 12 with respect to Chapter 3: Production and Costs will help you.
Related Links:
- Class 12 Economics Index Terms Part I Chapter1: Introduction
- Class 12 Economics Index Terms Part I Chapter 2: Theory of Consumer Behaviour
- Class 12 Economics Index Terms Part I Chapter 3: Production and Costs
- Class 12 Economics Index Terms Part I Chapter 4: The Theory of the Firm Under Perfect Competition
- Class 12 Economics Index Terms Part I Chapter 5: Market Equilibrium
- Class 12 Economics Index Terms Part II Chapter 1: Introduction
- Class 12 Economics Index Terms Part II Chapter 2: National Income Accounting
- Class 12 Economics Index Terms Part II Chapter 3: Money and Banking
- Class 12 Economics Index Terms Part II Chapter 4: Determination of Income and Employment
- Class 12 Economics Index Terms Part II Chapter 5: Government Budget and the Economy
- Class 12 Economics Index Terms Part II Chapter 6: Open Economy Macroeconomics
