#1 Production:-
Production is a process of transformation of inputs into outputs.
Inputs like Raw material, LABOUR, Capital, LAND, etc.
OUTPUT like goods and services.
#2 Production Function:-
it is a technical relationship between inputs and outputs. Inputs are independent and outputs are dependent. Inputs/Factor of Production
Fixed Input
Fixed inputs are those, the application of which doesn't not change with change in output. Eg. LAND
Variable Output
Variable output are those, the application of which CHANGES with change in output. Eg. LABOUR
#4: Types of Production Function
a) Very Short Run Production function:-
it refers to a production function in which producer is unable to change any factor of production i.e All factors are fixed. As a result, the output cannot be changed.
b) Short Run Production Function:-
It refers to the production function in which one factor/input is variable. In short run, production can only be increased when more units of variable factors (Labour) are employed.
c) Long Run Production function:-
It refers to the production function in which all the factors/inputs are variable and there are no fixed factors.
#5 Production Concepts:
a) Total Product (TP) / Total Physical Product (TTP):
It is defined as the total outputs produced by the firm within given inputs during a specified period of time.
Formula:
Q= AP * L
b) Average Product (AP)/ Average Physical Product (APT):
It is defined as amount of output produced per unit of variable inputs.
Formula: AP = TP / N
Where, N denotes No. Of variables input like labour.
c) Marginal Products ( MP ):
It is defined as change in total production resulting for m change in variable inputs.
Formula: MP: ∆TP / ∆N
Where, ∆ denotes change in.
#6: Relationship between TP and MP, and TP and AP:
Relationship between Marginal Product (MP) and Total Products (TP)
- i) When MP increases, then TP increases at increasing rate.
- ii) When MP decreases ( but remains positive), then TP increases at diminishing rate.
- iii) When MP =0, then TP is Maximum.
- iv) When MP becomes negative, then TP falls.
Relationship between Average Product (AP) and Total Products (TP)
- I) When MP > AP, then AP rises.
- ii) When MP = AP, then AP is Maximum.
- iii) When MP < AP, then AP falls.
#7 Law of Returns to Factor/ Law of Variable Proportion:-
Short Run: Assumptions of Law of variable proportion.
I) Only one input is variable i.e LABOUR
ii) All the factors are fixed.
iii) All the unit of variable factors are equally efficient.
iv) Technique of production doesn't change.
v) It is possible to combine more and more units of variable factors with the given unit of fixed factors (LAND).
#8 Define the Law of Variable Proportion:
In terms of TP - This law states that TP first increases at increasing rate, then Increases at diminishing, reaches its maximum and finally starts falling.
In terms of MP - This law states that MP first increases then decreases but remains positive and finally MP becomes negative.
#9 The Science Behind this Stages Reasons:
Stage 1: Increasing Returns to Factor:
In this stage, TP increases at increasing rate, MP also increases and reaches its maximum.
Reason for operation of this law.
a) Optimum combination of inputs along with full utilization of fixed inputs.
b) Division of Labour through Specialization.
Stage 2: Diminishing Returns to Factor.
In this stage, TP increases at diminishing rate, reaches it s maximum. Every producers tries to operate in this stage l. Also, in this stage, MP falls but remains positive.
Reason for operation of this law.
a) Efficiency starts declining when more variable inputs are employed beyond the optimum capacity.
b) Lack of Perfect Substitution between fixed inputs and variable outputs.
Stage 3: Negative Returns to Factor.
In this stage, TP start falling and MP becomes negative.
Reason for operation of this law.
a) Poor coordination between fixed and variable factors.
b) Decrease in Efficiency of Variable factors.
