What is meant by production function ?

This relationship between physical inputs (such as 20 units of capital and 15 units of labor) and physical output (200 units of goods produced) is called the production function. 

How many types of production function ?

There are two types of production function:

i) Short run production function 

ii)  Long run production function 


  short run production function 

It is a production function in which factor proportions change with a change in the level of output.

 long run production function 

It is the production function in which the factor proportion does not change with the change in the level of output. 

                 fixed and variable factors 

      

Fixed Factors: Fixed factors are those factors whose use does not change with the change in output. 

eg: machine

Variable Factors: Variable factors are those factors whose use changes with the change in output. 

eg: labor

      Total product

Total product is the sum total of what is produced by all units of a variable factor with some equal amount of the fixed factor used in the production process.

  Marginal product

The change in total physical product when an additional unit of variable factor is used is called marginal product.

 Average cost

is the average cost of production per unit of the variable factor.

Relationship between (i) total product and marginal product and (ii) average product and marginal product

 Table: Total Product, Marginal Product, Average Product






 Relationship between Product (TP) and Marginal Product (MP)

i) When total product increases at an increasing rate, marginal product increases to the maximum level.

ii) When total product increases at a decreasing rate, marginal product decreases but is positive.

iii) When total product is greater then marginal product is zero.

iv) When total product begins to decline, marginal product becomes negative. 

  Relationship Between Average Product and Marginal Product

i) When marginal product is greater than average product (MP>AP) when average product increases.

ii) Average product decreases when marginal product is less than average product (MP<AP).

iii) Average product is maximum when both average product and marginal product are equal (AP = MP).

               law of variable proportion

The law of variable proportions states that as more units of the variable factor are used with the fixed factor, the marginal product of the variable factor increases in the beginning, but later a situation must come when the marginal product of the variable factor starts falling.

    Table : Total Product and Marginal Product



  picture 



• State I lies on the TP curve from O to K. In this segment MP is increasing and TP is increasing at an increasing rate.

• Case II is between K and T. In this section MP is decreasing and TP is increasing at a decreasing rate. 

• State III is after point T. Now TP starts falling because MP is negative.