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This document includes appropriate description of about Product-Product Relationship Management, MRPS, Types of Products, PPC etc.

•11 gefällt mir•15,961 views

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This document includes appropriate description of about Product-Product Relationship Management, MRPS, Types of Products, PPC etc.

- 1. Chaudhary Charan Singh Haryana Agricultural University, Hisar College of Agriculture Farm Business Management (ABM – 521) ASSIGNMENT ON Principles of Combining Enterprises Submitted By:- Dhiraj Anant Kadam (2016A91MBA) Kumar N (2016A92MBA) Submitted To :- Dr. S.K.Goyal The Course Teacher Dept. of Business Mgt.
- 2. Principle of Combing Enterprise This principle is very important as it describes the Product - Product relationship. Here, instead of considering the allocation of inputs among enterprises, we discuss enterprise combination or product mix involving product relationship. Algebraically the relationship can be written as, Y1 = f (Y2) or Y1 = f (Y 2, Y3 ....,Yn) Relationships that can exist betweenenterprises or products :- 1) Joint product: Two or more than two products are produced in the same production process. No substitution among products is possible since joint products are produced in a fixed proportion. E.g. Production of Cotton crop gives us Cotton Lint and Cotton Seed. 2) Complementary Production: Two products (or enterprises) are complementary if an increase in output of one product (Y1) also causes an increase in the output other product (Y2) also, for the same level of inputs. PPC for complementary products have positive slope. E.g. Rotation of complimentary crop in cropping pattern. The by-products of one complementary enterprise (Y1) will serve as input for production of the other product (Y2). 3) Supplementary Production: In this case one product does not depend up on another. They are independent and one product can be increased without increasing or decreasing the other product. These two enterprises are not interlinked. E.g. Crop production and dairy enterprise, 4) Competitive Relationship: Two products (or enterprises) are competitive when the output of one product can be increased only by reducing the output of the other product. Outputs are competitive because they require the same inputs at the same time. E.g. If a farmer has a given level of water for irrigating Bhendi and Brinjal, he can either allocate
- 3. equal share of water to both or more of water to Bhendi and less to Brinjal. Hence,these two products become competitive. Most of the decisions regarding the choice of products are needed to be taken when these products are having competitive relationship. When two products are competitive they may substitute at constant rate, increasing rate or decreasing rate. Determination of optimum production combination: Optimum combination of two products can be obtained by following Algebraic and Graphic method 1) Algebraic Method: Algebrical1y, the combination can be determined by calculating MRPS and Price ratio. MRPS: It is marginal rate of product substitution. MRPS is the rate of change in quantity of output of one enterprise (Y1) as a result of unit increase in the output of the other enterprise (Y2), for a given level of input (X). It is also known as Marginal Rate of Product Transformation (MRPT). So it is the slope of the PPC. MRPS = ∆Y1/∆Y2 Units of replaced products Hence, MRPS = ------------------------------------- Units of added products Py1 Price ratio (inverse) = ------------- Py2 Therefore, optimum combination of two Products for a given level of input can he obtained by equating MRPS with inverse price ratio. i.e. MRPS = Price ratio = Py1/Py2
- 4. 2) Graphic Method: For obtaining optimum combination of two competitive products, we have to depict two curves by taking added quantities (y1) on horizontal axis and replaced quantities (y2) on vertical axis Production Possibility curve: It is a locus of all possible combinations of two products which can be obtained from a given amount of input. Production possibility curve are sometimes called as Iso-resource curve or opportunity curve because, i) Each output combination on this curve has the same resource requirement and ii) It represents all possible production opportunities. The shape of the production possibility curve (PPC) depends up on the types of product relationship involved- A. The PP curve is straight line when two outputs substitute at a constant rate. B. The curve is convex to the origin when two products substitute at decreasing rate. C. The curve is concave to the origin when two products substitute at increasing rate. It implies that more of one product is increased; the sacrificed of the other product becomes larger & larger. D. The slope of PP curve represents MRPS. Iso-revenue Curve: It is the line which indicates the different combinations of two products which gives the same amount of revenue or income. Properties of Iso-revenue line: 1. It is always straight line because the output prices do not change with the quantity sold. 2. The position of Iso revenue line shows the magnitude of the total revenue. As total revenue increases, the line moves away from the origin and vis-a-visa. 3. The slope of Iso-revenue curve represents the price ratio of two competing products.
- 5. Determinationof optimum product combination: The criteria for determining the optimum combination of two products is, MRPS = Inverse Price ratio Since the slope of PPC represents MRPS and the slope of Iso-revenue line represents price ratio, the optimum combination of two products will be at the point where slopes of PPC and Iso-revenue line are equal. Hence optimum combination of two products can he obtained where those two curves tangent each other. From the tangency point perpendiculars are taken on both axis, it will give the quantities of y2 and y1 which will be optimum one.