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1.4 Message of the Law

 The production of goods greatly depends on available resources or inputs. Such creation of goods can be increased through the proper application of the right technology, together with the most appropriate combination of the factors of production, and their management. However, there are limits to production because the supply of many resources is scarce, and that some of these are fixed.

 As shown in Table 4.1, the contribution of farmer 1 to production is 40 cavans. Marginal product is 0 because there is no additional farmer yet. Marginal product is defined as the additional product brought about by one additional unit of a variable input (farmer). The contribution of farmer 3 to production is 15 cavans. This is the additional or marginal product produced by farmer 2. Total product of the 2 farmers (farmer 1 and farmer 2) is 55 cavans (40 + 15). Up to farmer 4, marginal product is increasing. But after this point, marginal product decreases progressively until it becomes negative. It is noted that when marginal product increases, total product also increases. When marginal product decreases, total product increases at a decreasing rate, and when marginal product is below zero or negative, total product falls.

 The message of the law is that there is a proper combination of a variable input and a fixed input in order to attain the maximum output. It is not advisable to keep on increasing the number of farmers to work in one hectare of rice field. If they are many, most of them have nothing to do. They only hamper the works of the other farmers. A good knowledge of factor proportion contributes to profit maximization or production efficiency.

1.5 THE COSTS OF PRODUCTION

 One of the determinants of supply is cost of production. Producers have greater ability and willingness to supply a product which has a lower cost of production. As stated earlier, inputs or resources are needed in the production of goods. The prices of such resources are determined by demand and supply. Resources which are scarce, and there is a great demand for them to command higher prices. This means higher cost of production, and this results price of the products.

Cost does not only affect the producers bit also the buyers. Since an on crease in the cost of production consequently increase the prices of products, the tendency of buyers is to reduce their law of demand. For this reason, producers have always been in the search of ways and means of cost-reduction techniques. Lower cost means lower price. Lower price means more sales – and more profits. The Japanese producers are very good in this respect. That is why they are winners in international trade. Their products are in great demand even in highly industrialized countries like the United States, and those in Western Europe

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