Assignment on Introduction to MicroEconomics

Submitted To:
Name: MD. ALAUL HAQUE
Lecturer, Department of Business Administration
Metropolitan University

Submitted By:
Group Name: Lets Talk
BBA 37th Batch, Section A

Submission Date: 23-11-2015

Group Members List:

1. Enamul Hoque
ID: 153-116-003
2. Shibbir Ahmed
ID: 153-116-030
3. Akther Hossain Raf
ID: 153-116-014
4. Saruar Ahmed
ID: 153-116-019
5. Sydul Islam
ID: 153-116-031
6. MD. Ibrahim Ahmed
ID: 153-116-052

Production: Production should be defined, not as creation of

utility, but creation of value.
Short run: Short run is a process in the production which some
input are fixed.
Long run: Long run is a period of time in which all inputs can be
varied. No inputs are fixed.
Law of diminishing return: Its an economic principle stating
that as investment in a particular area increases, the rate of profit
from that investment, after certain point cannot continue to
increase if other variables remain at a constant. As investment
continues past that point, the return diminishing progressively.

A farmer example of diminishing return-

Units of fertilizer

Total Ears of Corn

1
2
3
4
5
6

100
250
425
550
600
525

Marginal Ears of
Corn
100
150
175
125
50
-75

Isoquant: An isoquant is a firms counterpart of the consumer

indifference curve, an isoquant is a curve that show all the
combination of inputs that yield the same level of output. Iso
means equal and Quant means quantity. Therefore, an isoquant
represents a constant quantity of output. The isoquant curve is
also known as an Equal product Curve.

Combination
A
B
C
D
E

Units of labour Units of capital Output of cloth

1
15
2
11
3
8
4
6
5
5
Iso- Product Schedule

(a) 1 Units of labour and 15 units of capital

(b) 2 Units of labour and 11 units of capital
(c) 3 Units of labour and 8 units of capital
(d) 4 Units of labour and 6 units of capital
(e) 5 Units of labour and 5 units of capital

200
200
200
200
200

Fig: Isoquant Curve

The law of variable Proportion

Defnition: The law of variable proportions shows a particular
pattern of changes in output and is an explanation of short run
production function where some factors remain unchanged.
Assumption of the law: The law is based on certain assumption
some of which are outlined below,
1. Land is considered as the fixed factor of production,
2. Labour is assumed as a variable factor of production,
3. All workers involved in production are equally efficient,
Factor of production: The combination of land, labour, capital
and organization are essential for any sector of production,
Land: Land is the initial and unique factor of production. At first
we need land to produce something.
Labour: Labour is also an essential factor of production. With the
increase of civilization labour has become more important than
land. For the proper utilization of natural resources of any country
labour is important.
Capital: Capital refers to that part of mans wealth which is used
in further production or which generates income.
Organization: In modern age, production system has gradually
become risky and complex. In this situation organization has
recognized as an important element of production for proper
combination of land, labour and capital and operating the
production activities with efficiency and breaking all kind risk and
uncertainty.
Finally we can say that though the importance all factor of
production is not same. Actually every factor of production is
interdependent.

Producers Equilibrium:
A rational producer always tries to achieve largest volume of
output from a given factor experience outlay on factor such that
these factors are combined in an optimal or most efficient way
.The producer maximizes his profits and producers a given level of
cost combination of factors will be optimum for him.

In figure, E is the point of equilibrium where is quant IQ2 is

tangential to is cost live at AB. Given budget line AB points P,N
and F are beyond the reach of the producer and points R and S is
quant IQ, give less output than the at the point of equilibrium E
which is on IQ2. The amount of spent on combination R,E,S is
same as all the three points lie on the same is cost line. But the
output produced at point E is higher as E lies on a higher is
quant .Given this is cost line and the series of is quant a producer
will choose that level of output, where a given is cost line is
tangential to the higher possible is quant.

Thus at the equilibrium point the marginal rate of technical

substitution is equal to the price ratio of factors.
Hence the condition for producers equilibrium is MRTxy=Px/Py

Returns to Scale:
The terms 'economies of scale' and 'returns to scale' are related,
but they mean very different things in economics. While
economies of scale refers to the cost savings that are realized
from an increase in the volume of production, returns to scale is
the variation or change in productivity that is the outcome from a
proportionate increase of all the input.
An increasing returns to scale occurs when the output increases
by a larger proportion than the increase in inputs, during the
production process. For example, if input is increased by 3 times,
but output increases by 3.75 times, then the firm or economy has
experienced an increasing returns to scale.
A decreasing returns to scale occurs when the proportion of
output is less than the increased input, during the production
process. For example, if input is increased by 3 times, but output
is reduced 2 times, the firm or economy has experienced
decreasing returns to scale.
Example Barrys Barbershop was experiencing what it thought
was overwhelming customer purchases. In one week the shop
served 250 clients. To capitalize on this market, Barry hired 2
additional barbers, which gave him a total of 10 barbers. In this
case the barbers are the input of resource, increased by 25%. As
a result, the barbershop experienced average weekly sales of 320
for the next five weeks, an increase in output of 28%; increasing
returns to scale. If instead the barbershop had made 225 sales
after the increase in input, it would have experienced decreasing
returns to scale.