Class XI

MICRO ECONOMICS

Production Function

PRASHANT KIRAD
 PRASHANT KIRAD

Ch: 5 Production Function

Production:
Definition:
Production means the creation of utility.
In economics, it refers to the transformation of input into
output.

Production Function:
Equation: Q=f(K,L,T)
Q: Output
K: Capital
L: Labour
T: Technology 2 th
& 1
Meaning: It describes the relationship between physical input and
physical output.
1 t h
Various Types of Production d 1
Functions
Exam mai aayega!
(EMA)
ra
Ki
1.Short Run ProductiontFunction:
Refers to ah a nperiod of time where some factors are fixed,
short
r a
and some
sare variable.
P
Fixed Factor:
Remains constant in the short run even when the quantity of
output changes.
Examples: Land, Building
Variable Factor:
Changes with the quantity of output.
Examples: Labour, Raw Material, Fuel

JOSH METER?
 PRASHANT KIRAD

2.Long Run Production Function:

Refers to a long period of time where all factors are variable.
In the long run, a producer can change all factors of production
due to the availability of time.

Types of Products:
1.Total Product (TP):
The total quantity of output produced by all the units of
variable factor along with some units of fixed factor used in
the production process.
2.Average Product (AP):
The output per unit of variable factor employed.
2th
Formula: AP= Total Product/ Units of Variable Factor Input
3.Marginal Product (MP): & 1
Definition:
1th
d 1
Refers to the additional product derived by employing one more
ira
unit of a variable factor.
t K
han
Represents the change in total product with respect to the
s
change in variable inputs (e.g., labour).
Pra
Formula:
MP=TPn−TPn−1
Where:
TPn​: Total product at the current unit of production
TPn−1: Total product at the previous unit of production
MP = ∆TP/∆Q
Where, ∆TP= Change in TP
∆Q = Change in per unit of variable factor.
 PRASHANT KIRAD

2 th
1
& Product
1 t h
Interrelationship of Total Product and Marginal
1.TP Increases, MP Increases: d 1 (EMA)
a
ir is increasing, the marginal product
When the total product (TP)
t K
h a n
(MP) also increases.
s
2.TP Increases at a Constant Rate, MP Becomes Constant:
a total product (TP) increases at a constant rate, the
Prthe
When
marginal product (MP) remains constant.
3.TP Increases at a Decreasing Rate, MP Starts Decreasing:
When the total product (TP) increases at a decreasing rate, the
marginal product (MP) begins to decrease.
4.TP is Maximum, MP Becomes Zero:
When the total product (TP) reaches its maximum point, the
marginal product (MP) becomes zero.
5.TP Declines but Remains Positive, MP Becomes Negative:
When the total product (TP) starts to decline but still remains
positive, the marginal product (MP) becomes negative.
 PRASHANT KIRAD

Law of Variable Proportions / Law of Diminishing Returns to

the Factor
(EMA)
Definition:
This is a fundamental theory of production, particularly
relevant to the short-run production function.
The theory states: "As the quantity of one input (variable)
increases while keeping other inputs constant (fixed), the total
product initially increases at an increasing rate, then at a
decreasing rate, and finally at a negative rate."
As more units of the variable factor are employed with a given
fixed factor, the proportion between the variable factor and
output changes.
2th
This change leads to the following sequence in output (Marginal
Product, MP): & 1
th
Initial Increase: MP increases at first.
1
1
Diminishing Returns: MP then begins to diminish.
d
ira
Zero and Negative Returns: MP eventually becomes zero and
t K
han
may even turn negative.
s
Pra
Assumptions:
1.Short Run Production Function:
The theory applies to the short run where some factors are
fixed.
2.Two Factors of Production:
Involves both fixed and variable factors.
3.Constant Technology:
Assumes that technology remains unchanged during the period
of analysis.
4.Field of Application:
This law is primarily applicable to agricultural fields or similar
scenarios.
 PRASHANT KIRAD

Schedule:

Diagram: 2th
& 1
1th
d 1
ira
t K
han
s
Pra

The law of variable proportion is explained in the above table

and diagram in which x-axis represents units of variable inputs
employed whereas y-axis represents TP, AP and MP.
 PRASHANT KIRAD

Phases of Production:
1.Increasing Return (First Stage):
Characteristics:
Both Average Product (AP) and Marginal Product (MP) increase.
Total Product (TP) also increases.
Point ‘F’ is known as the inflection point, where MP increases
steadily until this point.
This stage is completed when AP and MP are equal.
2.Diminishing Return (Second Stage):
Characteristics:
Both AP and MP decline.
The stage is completed when TP reaches its maximum (MP=0).
2th
3.Negative Return (Third Stage):
Characteristics: & 1
1th
TP declines due to a negative MP of labor.
d 1
AP remains positive despite the decline in TP.
ira
Causes of Increasing Return:
t K
han
1. Better utilization of fixed factors.
s
2. Improved coordination between factors.
Pra
3. Increased efficiency of labor.
Causes of Diminishing Return:
1. Fixity of the factor (e.g., land).
2. Imperfect substitutes for factors.
3. Reduced coordination between factors.
Causes of Negative Return:
1. Limitation of fixed factors.
2. Poor coordination between factors.
3. Decrease in efficiency of variable factors.
 PRASHANT KIRAD

Average Product (AP) and Marginal Product (MP)

Relationships:
(EMA)
Formulas:
Average Product (AP): AP= TP/Q​
Marginal Product (MP): MP= TPn​−TPn−1​
1.Increasing Phase:
When AP increases, MP also increases.
The rate of increase in MP is greater than the rate of increase
in AP.
2.Maximum Average Product:
When AP is at its maximum, MP cuts AP from above.
At this point, AP=MP.
2th
3.Decreasing Phase:
& 1
When AP decreases, MP also decreases.
1th
The rate of decrease in MP is greater than the rate of
d 1
decrease in AP.
ira
K
4.Declining Phase:
t
an
AP declines but remains positive.
h
s
Pra
MP declines and eventually becomes negative.
5.Constant Phase:
When AP is constant, MP also remains constant.
 PRASHANT KIRAD

Top 5 Questions
Q1.Explain the concept of a production function.
Ans: Production function expresses the maximum quantity of a
commodity that can be produced per unit of time, with given
amount of inputs when the best production technique is used. It is
expressed in terms of the equation :
Qx = Q=f(K,L,T)
Q: Output
K: Capital
L: Labour
T: Technology
where Qx = Production of commodity
2 th
(It is assured that labour and capital are the only two factors
used for production) & 1
1
Q2.What is the total product of an input? t h
Ans: Total product refers to thed
1
total amount of a commodity
ir a
t K
produced during some period of time along with different factors
of production.
h a n
Q3.Explain
r a s concepts of the short run and the long run.
the
P
Ans: Short-run production function refers to a situation where a
firm makes changes in the only output by changing its variable
factors and all the other inputs are fixed. Time period in which
firm make these change in said to be short run.
Long-run production function refers the change in output when all
inputs used in the production of good are changed simultaneously
and in the some proportion. In this case scale of production is
changed.
 PRASHANT KIRAD

Q4.Define the law of diminishing returns.

Ans: Law of Diminishing Returns states that when more and more
units of variable factors are employed with a fixed factor, then
marginal product of the variable factor must fall.
Q5.Explain the relationship between the marginal products and
the total product of an input.
Ans: The relationship between TP and MP are :
(i) When TP increases at an increasing rate, MP increases.
(ii) When TP increaes at a diminishing rate, MP declines.
(iii) When TP reaches its maximum, MP becomes zero.
(iv) When TP begins to decline, MP becomes negative.

2th
& 1
1th
d 1
ira
t K
han
s
Pra