Note on Concept of Production Function

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The Theory of Production explains the relationship between input and output. This relationship also explains the functional relationship between input and output of the firm. In simple word, we can explain the production function as the functional relationship between the physical inputs and physical output. The production can be expressed in the form of the following equation:

Q = f (L, La, C, O)

Where,

Q = Quantity

L = Land

La = Labour

C = Capital

O = Organization

Types of production function

source:slideplayer.com
source:slideplayer.com

1) Long-run production function: In a long run, all factors of production can be varied. It means, in the long run, we can also expand or reduce the scale of production. It is related to a long period.

2) Short-run production function:In the short run some factor are fixed and some are variable. It is related to the short period, it is called short run production.

Concept of Total Product, Average Product, and Marginal Product

Total Product (TP)

The sum of the total quantity of goods and services produced by a firm in a given period of time by using various inputs is called total product. The total product changes with the change in inputs. It can be calculated in two ways. They are:

a) TP = MP1 + MP2…..+ MPn

where, TP = Total product,

MP1 = 1st Marginal product

MP2 = 2nd Marginal product

b) TP = AP * Q

TP = Total product

AP = Average product

Q = Quantity

Unit

Total Product

Marginal Product

0

0

0

1

10

10

2

30

20

3

60

30

4

80

20

5

90

10

6

90

0

7

80

-10

In above table, different stages of production are shown. In 1st unit, the total production is 10 and it increases up to 3rd stage. In 4th stage, it increases up to 80 and when one labour is added it become 90 and remains constant and it decreases and become 80 in the 7th unit.

Average Product (AP)

Average product means the per unit product. In another word, the total product divided by the total input is called average product.

AP =TP/N

Where,

AP = Average product

TP = Total product

N = No. of input

This can be explained with help of the following table:

Units

Total Product

Average Product

Stage

1

10

10

1st

2

30

15

3

60

20

2nd

4

80

20

5

90

18

3rd

6

90

15

7

80

11.4

In the above table, the AP is 10 when the input is 1. As the inputs are continuously added the TP increases rapidly in increasing order and AP is 15 which is also increasing at the first rate. Up to the 3rd unit, AP increases rapidly but after that, it remains constant for a while in the 4thunit. Then, it slowly starts to decreases. At last, AP becomes 11.4 at the 7th input.

Marginal Product (MP)

Marginal product is the net additional product to the total product made by added unit of other input. In another word, it is the increasing total product due to the change in fashion of production.

MP = TP2 – TP1

MP = Marginal product

TP1 = 1st Total product

TP2 = 2nd Total product

This can be explained with the help of the following table:

Units

Total Product

Marginal Product

Stage

1

10

10

1st

2

30

20

3

60

30

2nd

4

80

20

5

90

10

3rd

6

90

0

7

80

-10

In the table, when the input is 1, the MP is 10. Here along with the increase in input, the MP also continuously increases but in a slow rate. Up to 3rd input, the MP increases from 10 to 30 but from 4th input, MP decreases from 30 to 20 and to 10 at the 5th unit of input. Then, in a sixth input, MP becomes zero. When one more input is added to 7th input, the MP becomes negative.

(Karna, Khanal, and Chaulagain)(Khanal, Khatiwada, and Thapa)(Jha, Bhusal, and Bista)

Bibliography

Jha, P.K., et al. Economics II. Kalimati, Kathmandu: Dreamland Publication, 2011.

Karna, Dr.Surendra Labh, Bhawani Prasad Khanal and Neelam Prasad Chaulagain. Economics. Kathmandu: Jupiter Publisher and Distributors Pvt. Ltd, 2070.

Khanal, Dr. Rajesh Keshar, et al. Economics II. Kathmandu: Januka Publication Pvt. Ltd., 2013.

  1. The theory of production explains the relationship between input and output.
  2. The sum of the total quantity of goods and services produce by a firm in a given period of time by using various inputs is called total product. 
  3. Total product divided by the total input is called average product.
  4. Marginal product is the net additional product to the total product made by added unit of other input. 
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