Production function

PRODUCTION FUNCTION
Abdul wahid
Y17282001
Ajmal NP
Y17282002
Aman Kumari
Y10282004
Ankita Kujur
Y17282006
Department of Business Management
Dr. Harisingh Gour Central University
Sagar (M.P.)
PRESENTED BY:

 Production is an important economic activity which
satisfies the want and needs of the people.
 Production is a process of transforming inputs into
outputs. So, production means the creation of goods
and services. It is done to satisfy human wants. Thus,
production is a process of transformation.
Q. What is production?
Production

In simple words, production function refers to the
functional relationship between input (raw materials)
used and the resulting output (desire goods).
Output
Input
Production function

Important facts about production
function
 A Production function is expressed with reference to a
particular period of time.
 It expresses a physical relation because both input and output
are expressed in physical terms.
 Production function describes a purely technological relation
because what can be produced from a given amount of input
depends upon the state of technology.

Production
function
It shows the technical relation between
input and output
Q = f (I ,O)
Factors of production
-Land
-labour
-Capital
-Enterprise

USES OF PRODUCTION FUNCTION
 it will help to obtain maximum output
Help the producer to determine whether
employing variable inputs/costs are profitable
It is help full to calculate the least cost input
combination for a given out put
It is very useful in taking longrun decision

The nature of production function i.e. how output
varies with change in the quantity of input depends
upon the time period allowed for the adjustment of
inputs.
On the basis of production function classified into
two types:
 Short run production function .
 Long run production function.
Type of production function

SHORT RUN V/S LONG RUN
Short run Plant size is fixed
labour is variable.
Long run To increase
production firms increase
labour but cannot expand
their plant.

 Short run production functions:- At what rate the
output of a good changes when only one input is
varied and other input used in production of that
good are kept fixed. The resulting behavior of output
is termed as return to a factor.
 Long run production functions:- At what rate of
output of a good change when all the input used in
production of that good are changes simultaneously
and in the same proportion. The resulting behavior
of output is termed as return to scale.

 Fixed Inputs:- Fixed input are those factor the quantity of
which remains constant irrespective of the level of output
produced by a firms. For e.x
land,building,machines,tools,equipment,superior, type of
labour,top management etc.
 Variable inputs:- Variable input are those factor the
quantity of which varies with variations in the level of output
produced by a firms. For e.x raw material, power fuel,
transport labour etc.
Two types of factor inputs

Concept of
production
Total
Production
Average
production
Marginal
production
It is the sum
total of all out
put produced
in a given
period of tine
It is the output
produced per
unit of labour
It is the change in
total production as
a result of change
in quantity of
labour
TP = AP X Ql
AP = TP
Ql
MP = TP
Ql

TOTAL, AVERAGE, AND MARGINAL PRODUCT
SCHEDULE CONSIDER A SMALL SANDWICH
SHOP
NO.OF WORKERS TOTAL PRODUCT AVERAGE PRODUCT MARGINAL PRODUCT
PRODUCT (L) (TP) (AP) (MP)
0 ------ ------ ------
1 100 100 100
2 220 110 120 1st
3 360 120 140
4 520 130 160
5 650 130 130
6 750 125 100
7 840 120 90 2 sd
8 880 110 40
9 880 97.7 0
10 830 83 50 3rd
11 770 77 60

GRAPH OF LAW VARIABL
PROPORTION

THREE STAGES OF PRODUCTION
STAGE:1 Average product
rising.
STAGE:2 Average product
declining.
(but marginal product positive )
STAGE:3 Marginal product is
negative or total product is
declining.

RELATIONSHIP BETWEEN
DIFFERENT PRODUCT
Between AP and MP
 when MP > AP,AP,increases.
 when MP<AP, AP,decreases.
 when MP=AP,AP is maximum.
Between TP and MP
 when TP increases at increasing rate,MP
increases.
 when TP increases at decreasing rate MP
decreases.
 when TP maximum, MP is 0.
 when TP decreases,MP is negative.

Law of Diminishing Returns/ Law of Variable
Proportion
Law of Return to Scale

LAW OF DIMINISHING RETURNS/ LAW OF
VARIABLE PROPORTION
 Law of diminishing returns explains that when more
and more units of a variable input are employed on
a given quantity of fixed inputs, the total output may
initially increase at increasing rate and then at a
constant rate, but it will eventually increase at
diminishing rates.
 In other words, the total output initially increases
with an increase in variable input at given quantity
of fixed inputs, but it starts decreasing after a point
of time.

The assumptions made for the application of
law of diminishing returns are as follows:
i. Assumes labour as an only variable input, while capital
is constant
ii. Assumes labour to be homogeneous
iii. Assumes that state of technology is given
iv. Assumes that input prices are given

The law of returns to scale describes the relationship
between variable inputs and output when all the
inputs, or factors are increased in the same
proportion. The law of returns to scale analysis the
effects of scale on the level of output. Here we find
out in what proportions the output changes when
there is proportionate change in the quantities of all
inputs. The answer to this question helps a firm to
determine its scale or size in the long run.
Law of return to scale

Three kinds types of returns to scale:
(1) Increasing Returns to Scale:
If the output of a firm increases more than in proportion to an
equal percentage increase in all inputs, the production is said
to exhibit increasing returns to scale.
For example, if the amount of inputs are doubled and the output
increases by more than double, it is said to be an increasing
returns to scale. When there is an increase in the scale of
production, it leads to lower average cost per unit produced
as the firm enjoys economies of scale.
(2) Constant Returns to Scale:
When all inputs are increased by a certain percentage, the
output increases by the same percentage, the production
function is said to exhibit constant returns to scale.

For example, if a firm doubles inputs, it doubles output. In
case, it triples output. The constant scale of production has
no effect on average cost per unit produced.
(3) Diminishing Returns to Scale:
The term 'diminishing' returns to scale refers to scale where
output increases in a smaller proportion than the increase in
all inputs.
For example, if a firm increases inputs by 100% but the
output decreases by less than 100%, the firm is said to
exhibit decreasing returns to scale. In case of decreasing
returns to scale, the firm faces diseconomies of scale. The
firm's scale of production leads to higher average cost per
unit produced.

ISO QUANT
A firm uses one unit of labour and one unit of capital, point a, it
produces 1 unit of quantity as is shown on the q = 1 iso quant. When
the firm doubles its outputs by using 2 units of labour and 2 units of
capital, it produces more than double from q = 1 to q = 3.
So the production function has increasing returns to scale in this
range. Another output from quantity 3 to quantity 6. At the last
doubling point c to point d, the production function has decreasing
returns to scale. The doubling of output from 4 units of input, causes
output to increase from 6 to 8 units increases of two units only.

Production function

More Related Content

What's hot

Similar to Production function

Recently uploaded

Production function