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:

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

• Marginal product

• 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:

• Downward sloping

• Higher isoquant represent larger output

• No two isoquant intersect or touch each other

• Convex to the origin

• Higher isoquant vs. lower isoquant

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