# Production Function

Dr. Manishika Jain- Join online Paper 1 intensive course. Includes tests and expected questions.

• 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

Refer

Developed by: