Production function

  • Production function is purely a technological relationship which expresses the relation between output of a good and the different combination of inputs used in its production.

  • It indicates the maximum amt of output that can be produced with the help of each possible combination of inputs.

  • The production function written mathematically as

  • Q= F (L, N, K)

  • Q= rate of output

  • Land, labour, capital

Based on two main assumptions:

  1. Technology is invariant

  2. Firms utilize their inputs as maximum level of their efficiency

Production function:

  1. Short-run production function (Returns to a factor) or law of variable proportion

  2. long-run production function (Returns to scale)

Short-run production function:

  • It is a period where output can be changed by changing only variable factors of production. (fixed factors remain fixed)

  • Key terms:

  1. Total product: total quantity of goods produced by a firm during a period of time

  2. Marginal product

  3. Average product: per unit output

Law of variable proportion:

(Stage of increasing returns Stage of decreasing returns Stage of negative returns)

  • Plant, machinery, floor space etc. fixed

  • Amt of labour services only vary

Long-run production function:

  • A situation where all inputs are subject to variation is a case of long-run function.

  • Behavior of output in response to change in the scale

  • Isoquant:

  • Isoquant is a Curve representing the various combinations of two inputs that produce the same amount of output.

  • Property:

  1. Downward sloping

  2. Higher isoquant represent larger output

  3. No two isoquant intersect or touch each other

  4. Convex to the origin

  • Higher isoquant vs. lower isoquant

    Refer

    Watch video lecture on YouTube: Youtube Video Tutorial on Production Function

    Youtube Video Tutorial on Production Function