FUNCTION
Presented By:
Nidhi Panday
TABLE OF CONTENTS
PRODUCTION FUNCTION
FOR EXAMPLE
PRODUCTION FUNCTION
PRODUCTION
FUNCTION
PRODUCTION FUNCTION
Short term : Time when one input (say, capital)
remains constant and an addition to output
can be obtained only by using more labour.
Long run: Both inputs become variable.
Production process is
subject to various phasesLaws of production state the relationship
between output and input.
LAWS OF PRODUCTION
Short run :
Relationship between input and output are studied
by varying one input , others being held
constant.
Law of Variable Proportions brings out
relationship between varying proportions of
factor inputs and output
Long run:
Production function is subject to different phases
described under the Law of Returns to Scale
Studied assuming that all factor inputs are
variable.
LAW OF VARIABLE
PROPORTIONS
Law of Variable Proportions (Short run Law of
Production)
Assumptions:
One factor (say, L) is variable and the other
factor (say, K) is constant
Labour is homogeneous
Technology remains constant
Input prices are given
Total Product
Marginal
Average
Product (MPl )
Product (APl )
24
24
24
72
48
36
138
66
46
216
78
54
300
84
60
384
84
64
462
78
66
528
66
66
576
48
64
10
600
24
60
11
594
-6
54
12
552
-42
46
(TPl)
Stages of
Returns
I)
Increasing
Returns
II)
Diminishing
Returns
III) Negative
Returns
10
LAW OF VARIABLE
PROPORTIONS
Panel A
p
r
o
d
u
c
t
T
o
t
a
l
P
r
o
d
Total Product
T
o
t
a
l
Labour
11
LAW OF VARIABLE
PROPORTIONS
Panel B
AP/MP
Panel B represents
Marginal and average
productivity curves of
labour
APL
labour
M MPL
P
L
12
LAW OF VARIABLE
PROPORTIONS
Significance of Law of Diminishing Marginal
Returns:
Empirical law, frequently observed in various
production activities
Particularly in agriculture where natural
factors (say land), which play an important
role, are limited.
Helps manager in identifying rational and
irrational stages of operation
14
LAW OF VARIABLE
PROPORTIONS
It provides answers to questions such as:
a) How much to produce?
b) What number of workers (and other
variable factors) to employ in order to
maximize output
In our example, firm should employ a minimum
of 7 workers and maximum of 10 workers
(where TP is still rising)
15
LAW OF VARIABLE
PROPORTIONS
16
VARIABLE PROPORTIONS
PRODUCTION FUNCTION
When
18
Total Product
TP = Q = f(L)
Marginal Product
TP
MPL =
L
Average Product
TP
APL =
L
Production or
Output Elasticity
MPL
EL =
APL
19
Total Product
Total
TP = Q = f (L)
20
MARGINAL PRODUCT
The
TP
MPL =
L
21
AVERAGE PRODUCT
The
TP
APL =
L
22
Q
0
3
8
12
14
14
12
MPL
3
5
4
2
0
-2
APL
3
4
4
3.5
2.8
2
EL
1
1.25
1
0.57
0
-1
23
24
Isoquants
K
6
5
4
3
2
1
Q
10
12
12
10
7
3
1
24
28
28
23
18
8
2
31
36
36
33
28
12
3
26
36
40
40
36
30
14
4
40
42
40
36
30
14
5
39
40
36
33
28
12
6 L
ASSUMPTIONS
THEPRODUCTIONFUNCTIONSAREBASEDON
CERTAINASSUMPTIONS.
1 Perfectdivisibilityofbothinputsandoutputs
2 Limitedsubstitutionofonefactor foranother
3 Constanttechnology
4Inelasticsupplyoffixedfactorsin theshortrun
SUMMARY
FURTHER READINGS
THANK YOU
AND HAVE A NICE DAY