SCALE OF PRODUCTION

GLOSSARY

SCALE OF PRODUCTION:

                 Scale of production is set by the size of pant, the number of plants installed and the technique of production adopted by the producer. The scale of production is classified as under: (a) Small Scale Production.

(b) Large Scale Production.

(C ) Optimum Scale of Production

(a) Small Scale Production: If a firm produces goods with small sized plants, the scale of production is said to be small. Small scale of production is associated with low capital output and capital labor rations. In the small scale of production, the economies of scale do not occur to the firm.

(b) Large Scale Production: If a firm uses more capital and larger quantities of other factors, it is said to be operating on large scale. Large scale production enjoys both internal economies of scale.

(C ) Optimum Scale of Production: The optimum scale of production refers to that size of production which is accompanies by maximum net economies of scale. It is a scale at which the cost of production per unit is the lowest.

ALLOCATIVE EFFICIENCY:

          It is condition when the resources are used to produce the goods and services which are most preferred by consumers.

ARC ELASTICITY OF DEMAND:

        When price elasticity of demand is calculated between any two finite points on a demand curve, it is named ARC ELASTICITY.

ELASTICITY OF DEMAND:

       Price elasticity of demand is the degree of responsiveness of demand for a good due to the change in its price. It is computed by the percentage change in its price.

SUPPLY:

             Supply in the schedule of the quantities of a good which its producers are prepared to sell at various prices during a specified time period.

SUPPLY FUNCTION:

               Supply function is based on the law of supply. If states the relationship between the quantity supplied of a good ( as a dependent variable ) and its determinants ( as independent variables ) Q_s * =f(P_x).

SUNK COST:

              Sunk cost is that cost which has been incurred in the past and is not recoverable now. For example, the cost of advertising for the sale of product is a sunk cost.

SHUT DOWN COMPETITIVE FIRM:

             The price which is equal to the minimum average variable cost of the competitive firm and below which it will produce no output is called shut down price shut down=when price < AVC.

RENT:

            According to Ricardo, rent is that portion of the produce of earth which is paid to the landlord for the use of original and indestructible powers of the soil. In brief, it is the payment which the land owners receive for the use of their land.

REGRESSIVE TAX:

           In case the rate of tax is lowered as the taxable income of an individual or firm increases the tax is called regressive. The burden of regressive tax falls more on the poor than on the rich people. Indirect taxes tend to be regressive.