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    Unit 24: Demand For Factors of Production

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    mohdportman
    The document discusses factors of production and how firms determine the optimal combination. It notes that the type of factors used depends on the product and their costs. When factors are substitutes, a change in one may lead to replacing another. When complements, an improvement in one factor can increase use of all factors. In the short run, buildings are a fixed factor that cannot change quickly while labor is easier to vary. Firms must find the right balance of factors to fully utilize their resources.

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    Unit 24: Demand For Factors of Production

    Uploaded by

    mohdportman
    31 views13 pages
    The document discusses factors of production and how firms determine the optimal combination. It notes that the type of factors used depends on the product and their costs. When factors are substitutes, a change in one may lead to replacing another. When complements, an improvement in one factor can increase use of all factors. In the short run, buildings are a fixed factor that cannot change quickly while labor is easier to vary. Firms must find the right balance of factors to fully utilize their resources.

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    Demand for FOP

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    The document discusses factors of production and how firms determine the optimal combination. It notes that the type of factors used depends on the product and their costs. When factors are substitutes, a change in one may lead to replacing another. When complements, an improvement in one factor can increase use of all factors. In the short run, buildings are a fixed factor that cannot change quickly while labor is easier to vary. Firms must find the right balance of factors to fully utilize their resources.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    31 views13 pages

    Unit 24: Demand For Factors of Production

    Uploaded by

    mohdportman
    The document discusses factors of production and how firms determine the optimal combination. It notes that the type of factors used depends on the product and their costs. When factors are substitutes, a change in one may lead to replacing another. When complements, an improvement in one factor can increase use of all factors. In the short run, buildings are a fixed factor that cannot change quickly while labor is easier to vary. Firms must find the right balance of factors to fully utilize their resources.

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    UNIT 24 : DEMAND FOR FACTORS OF PRODUCTION

    • The type of factors of production employed is influenced by the type of


    product produced, the productivity of the factors and their cost. A firm
    producing a standardised model of car is likely to be very capital
    intensive whereas a beauty salon is likely to be labour intensive.
    • When factors of production are substitutes, a rise in the productivity or fall in the cost
    of one of them may result in a change in the combination of resources being
    employed. A fall in the price of capital goods, for example, might lead to the
    replacement of some workers with machines.
    • In other cases where factors of production are complements, a fall in the price of one
    or a rise in its productivity may increase the employment of all factors in a firm. For
    instance, a fall in the price of aircraft may make it possible for an airline to fly to
    more destinations. If so, they will also employ more pilots, more cabin crew and
    obtain more take-off and landing slots at airports.
    • Altering Factors of Production:
    • If a firm wants to change the quantity of resources employed by it, it
    will find it easier to do this with some factors than others. In the short
    run, there is likely to be at least one fixed factor of production. This
    means the quantity cannot be altered quickly. The most obvious
    example is the size of the factory or office. It will take time for a firm
    desiring expansion, to extend its buildings or build new ones
    • Similarly, one wanting to reduce output is unlikely to be able to stop renting or sell
    off its buildings quickly. In contrast, it is likely to be easier to change the quantity
    of labour. Even in the very short run, it may be possible to alter the quantity of
    labour by changing the amount of overtime available.
    • It may also be possible to change orders for raw materials and capital equipment
    but it will depend on the length of contracts and, in the case of increasing demand,
    the availability of spare capacity with firms producing them.
    • Combining the Factors of Production:
    • It is important to achieve the right combination of factors of
    production. For instance, it would not make sense for a hairdressing
    salon to have ten hair dryers and two hairdressers or a farmer to have
    a large amount of land and only a few cattle. In the first case, labour
    would be underutilized and in the second case, there would be an
    insufficient number of livestock to make full use of land.
    • Table 1 Combining labour with machines:

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