Production function

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  • 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
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