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production function notes

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Jyoti
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4 views

production function notes

Uploaded by

Jyoti
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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TOPIC: PRODUCTION FUNCTION

Production Function refers to a relation between input


or output.
Production function refers to the relationship between
physical inputs and physical outputs of a commodity.
Qx = f (L, K)
Here, Qx = Output of commodity X
L = Labour
K = Capital
Fixed
Factors of Factors
Production Variable
Factors
Fixed Factors:
Factors which are not change with the change in
volume of output.
Eg: Land, Building, Plant and Machinary
Variable Factors:
Factors which are change with the change in volume of
output.
Eg: Labours
Short Run Production Function:
Short Run is a period where production can be
increased only by increasing in variable factors (eg.
Labour) and fixed factors remain constant (eg. Plant
and machinery).
Qx = f (L, K̅)
Eg. 10x = f (5L, 2K̅)
20x = f (6L, 2K̅)
Y
Capital (K)

K1 K2

0 L1 L2 X

Long Run Production Function:


Long Run is a period where all production factors are
variable factors. It increases the production capacity of
firm: plant size can be changed, or more plants can be
installed.
Qx = f (L, K)
Eg. 10x = f (5L, 2K)
30x = f (6L, 3K)
Y
K2
Capital (K)

K1

0 X
L1 L2
Different between Short Run Production Function
and Long Run Production Function:
Short Run Production Long Run Production
Function Function
Variable Function Constant Function
Output can be changed by Output can be changed by
variable factors only all factors
Output is constant Output changes
Return to a factor Return to scale

TP (Total Product)
TP is the sum of output produced by all the units of a
variable factors used in process of production.
TP = MP
MP (Marginal Product)
MP refers to the change in TP when one or more units
of variable factors are used.
TP = TP2-TP1
AP (Average Product)
AP refers to the per unit production of the variable
variables.
AP = TP
AP
L
K L TP MP AP
1 1 50 50-0=50 50/1=50
1 2 90 90-50=40 90/2=45
1 3 120 120-90=30 120/3=40
1 4 140 140-120=20 140/4=35
1 5 150 150-140=10 150/5=30
1 6 150 150-150=0 150/6=25
1 7 147 150-147=-3 147/7=21

LAW OF VARIABLE PROPORTIONS OR


RETURN TO A FACTOR
Law of Variable proportions states that as more and
more units of the variable factors are combined with the
fixed factors, when total product may initially rise with
the increasing rate, but eventually a stage must come
when total product increase with the decreasing rate and
when total product reach its higher level than total
product starts declining.
Land Labor TP MP
1 1 2 2
TP is increasing with increasing
1 2 5 3 rate
1 3 9 4
1 4 12 3 TP is increasing with the
1 5 14 2 decreasing rate
1 6 15 1
TP is constant and MP is zero
1 7 15 0
1 8 14 -1 TP starts falling and MP
become zero

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