In ecobnomics, utility is a measure of relative satisfaction.
Utility is a scientific construct that economics use to understand how retinal consumers divide their limited resources among the commodities that provide them with satisfaction.
The cardinal measurement of utility :
First and most important assumption of marginal utility is cardinal measurement of utility.
The utility can be measured and the exact measurement can be given by assigning definite numbers such as 1,2,3 etc.that is, it is assumed that the utility is a quantifiable entity.This means that a person can epress the satisfaction derived from the consumption of a commodity in quantitive terms.
Suppose, for instance the first unit of a commodity has utility equal to 10, the second unit 8 and so on.So it is possible for a consumer to compare the utilities of different goods.
For example, John has utility 20 for fruits and sweets 10, then we can say, that for john the utility of fruits is double that of sweets.
Explain Consumer behaiour :
In explaining consumer behaviour, economics refers on the fundamentals premise that people choose those goods and services they value most highly.
To describe the way consumers rank different and services.If services basket A has higher utility then basket B for smith, this ranking indicates that smith prefers A over B.It is convenient to think of utility as the subjective pleasure or usefulness that a person derives consuming a goods or services.
Describe different factors of production :
There are two factors of production.These are :- i.Fixed Factor
i. Fixed Factor : The factors which are cannot be changed in the short period are called fixed factor.Such as land, equipment et.cannot be fully modified or adjust in a short period.
ii. Variable Factor : The factors which can be change in a short period is called variable factors.Such as labor can be increased or decreased in a short period of time.
Describe about the long run and short run productivity :
i. Short Run : The short run is the period of time in which only some inputs, the variable inputs, can be adjusted.
For example, short run as a period in which firms can adjusted production by changing variable factors such as materials and labor but cannot change fixed factors such as capital.
ii. Long Run : The long run is a period in which all factors employed by the firm including capital can be changed.
Effect of technological change in production :
Technological change refers to improvement in the process for producing goods and services in old product, or introduce of new product.The technological change shifts the production function upword.
The solid line represents maximum producible output for each level of inputs given the state of technical knowledge in 1995.As a result of improvements in computer technology and management practices technological change shifts the production function upword, allowing shifts the production function upward, allowing much more output to be produced in 2005.
cost or cost of production :
To produce any goods ,the produces have to collect various factors of production.For the production of any goods money must be expended for raw materials, and buy machinarious of land, ways of labour, interest of capital etc.The cost which are expended to collect various factor for the production of certain quatization goods are called cost of production.
Cost of production depend on quantization of production.In brief, cost of production is the sum of all payments to the factor of production engaged in the production of their commodity.
Total cost :
Total cost represent the lowest total dollar expense needed to produce each level of output.
Fixed cost :
Fixed cost represent the total dollar expense that i paid out even when no output is produced.Fixed cost is unaffected by only variation in the quantity of output.
variable cost :
Variable cost represent, the expense that very with the level of output such as raw materials, ways and faul and includes all costs that are not fixed.
The major elements of a firm's costs are its fixed costs and its variable costs.Total costs are equal to fixed cost puls variable cost.
TC = VC + FC.
Marginal Cost :
marginal cost or MC is one of the most important concepts in all of economics.Marginal cost is the addition to total cost by a small increament in output.
Marginal cost maybe defined as the change in total cost resulting from the unit change in the quantity produced.
Marginal cost curve falls at first due to more efficient use of variable factor as output increases and then it slops upward as further addition then the output interface with the most efficient use of variable factor.
Marginal cost can be exprissed in following formula :-
MC = change in Q/change in TC
Average Cost :
Average cost or AC is the total cost divided by the total number of units produced. Average cost can be expressed in the following formula :- Average cost : = Total cost/Output/Unit
The relationship between Marginal cost and average cost :
1.When marginal cost in below average cost, it is pulling average cost down.
2.When MC is above AC, it is pulling AC up.
3.When MC just equals AC, AC is neither rising nor falling and is at its minimum.
This is a critical relationship.It means that a firm searching for the lowest average cost of production should look for the output at which marginal costs equal average costs.
The relationship betwen marginal cost and total cost :
1.When total cost is increasing at increasing rate, its corresponding marginal cost is rising.
2.When total cost is increasing at decreasing rate, its corresponding marginal cost is falling.
3.When total cost has reached the maximum that means it is increasing at a zero rate, itws corresponding marginal cost is zero.
Least cost rule :
A firm will minimize its total cost of production, when the marginal product per dollar of input is equalized for each factor of production it is called the least cost rule.
To produce a given level of output at least cost, the firm should buy inputs until it has equalized the marginal product per dollar spend on each input.
It can be expressed as,
Marginal product of L/Price of L = Marginal Product of A/Price of A.
Implicit cost :
Implicit costs are costs of self owned and self employed resources such as salary of the proprietor or return on the entre prenewers our investment.These costs are frequently ignored in calculating the express of production.explicit cost :
Explicit costs are the paid out costs, they consists of the salaries and wages paid to the employees, prices of row and semi finished materials, over head costs and payments into depreciation and sinking fund accounts.These ae firms accounting expense.
cost function :
Cost function is related with the cost of production.This function expresses the functional or dependent relationship between cost and production and it uses of different factors, at which a certain related period of time.that means cost function shows the technical or mathematical relationship between input and output.Thus cost function is as follows :
c = f(L,La,k,o)
c = cost of production
f = function
l = land
la = labour
k = capital
o = organization
There cost directly depends on use of land, labour, capital and organization.
Cost function explain the direct relation between cost of productions and use of different factors with the increases in use of factors, cost of production increase and vice-cersa.