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Production Function

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LEARN WITH AGALYA
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20 views

Production Function

Uploaded by

LEARN WITH AGALYA
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Production: It is defined as the transformation of resources into commodities.

Production Function: In the production function, the physical inputs are used. The relationship
between the output and the production factors defines a firm’s production function. It is used for
the manufacturing process. It displays the numbers of inputs that help produce a high level of
output.
The production function is presented as follows: Q = f(x1,x2)
Here, Q equals the final units of output; x1 and x2 are production factor 1 and production factor
2. The equation shows that production factors 1 and 2 can be used to produce units of the final
output.
Types of Production Function:
1. Short-run Production Function: One factor is variable while the others are fixed in a
short-run production function. Then, the law of return to a factor is applied to the
production function.
2. Long-run Production Function: The law of diminishing returns to scale is applied.
Thus, it is also referred to as the constant proportion type production function. The long-
run is an extended period of time in which all the variables involved in the production
like machine, building, etc. can be modified by the producer.
Total product: It can be defined as the total sum of all the final units of output produced by
a firm using the given amount of inputs for a particular given time period. The firm uses
the given amount of inputs for a given time period. Besides, the other factors are held
constant. The total product is the relationship between the variable factors of production
and the final units of output. Further, the following formula expresses the total product:
Total Product (TP) = ∑ Qx
It depicts the relationship between the variable factors of production and the total output.
Average Production: The variable factor per unit production is the average production.
AP = TPVariable Input
Marginal Product (MP) of an Input: Change in Total Product / Change in Variable Product
Relationship between marginal, total, and average product
MP = ΔTPΔL
MPn = TPn – TPn-1
 When Total Product (TP) rises at an increasing rate, Marginal Product (MP) increases as
well
 Marginal Product (MP) decreases as Total Product (TP) increases at a decreasing rate.
 When Total Product (TP) is at its maximum, Marginal Product (MP) equals zero.
 When Total Product (TP) starts to fall, Marginal Product (MP) becomes -ve
Returns to a factor: This term describes a scenario of the output behaviour when only one of
the variable factor of production is increased in the short-run but all the fixed factors
remain constant during that time period
Law of variable proportion
The law states that when more than one unit is used for increased output, the output initially
increases at a specific rate.
1. Stage I (Increasing Return to factor): More units of variable factors will combine with
fixed elements in the initial stage. The total physical production may increase, and then
MP may also rise.
The increased return occurs due to the following reasons:
 Underutilisation of fixed factors.
 Indivisibility of factors.
 Increased efficiency of the variable factor.
2. Stage II (Stage of Diminishing Return to factor): If TP increases at a decreasing rate,
more units of variable factors are combined with other factors. The total product
increases at a decreasing rate. Thus, MP decreases but remains positive till the end of this
phase.
3. Stage III (Stage of negative return to factor): TP may fall as more units of variable
factors combine with fixed factors, the total output falls, and the marginal product
becomes negative.
 Cause of negative return.
 Miscoordination between fixed and variable factors.
 The excessive use of fixed factors.

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