2. TABLE OF CONTENT
• PRODUCTION FUNCION
• DEFINITION OF PRODUCTION FUNCTION
• IMPORTANT FACTS ABOUT PRODUCTION FUNCTION
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•
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•
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TYPES OF PRODUCION FUNCTION
USES OF PRODUCTION FUNCTION
STAGES OF PRODUCTION FUNCTION
FACTORS AFFECTING PRODUCTIVITY
SCHEDULES AND GRAPHS
CONCLUSION
LIST OF REFARANCES
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Inputs
Process
Land
Labour
Capital
Product or
service
generated
Output
5. WHAT IS PRODUCTION?
It’s an activity that
transforms input into
output.
• by tanveerabbott on Jan
o6,2013
6. IMPORTANT FACTS ABOUT PRODUCTION
FUNCTION
• A Production function is expressed with reference to a particular period of time.
• It expresses a physical relation because both inputs and outputs are expressed in
physical terms.
• Prodction function describes a purely technological relation because what can be
produced from a given amount of inputs depends upon the state of technology
•
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7. TYPES OF PRODUCTION
FUNCTION
• The fixed proportion production function.
• The variable proportion production
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function.
8. FIXED PROPORTION PRODUCTION
FUNCTION
• There is only one way in which the factors may
be combined to produce a given level of output
efficiently.
• It requires a fixed combination of inputs to
produce a given level of output.
• There is no possibility of substitution between
the factors of production.
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9. VARIABLE PROPORTIONS
PRODUCTION FUNCTION
• Acc. to it, a given level of output can be
produced by several alternative
combinations of factors of production, say
capital and labour.
• It is assumed that the factors can be
combined in infinite number of ways.
• The common level of output obtained
from alternative combinations of capital
and labour is given by an isoquant Q in
Fig.
•
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10. USES OF PRODUCTION
FUNCTION
• How to obtain Maximum output
• Helps the producers to determine whether employing variable inputs /costs are
profitable
• Highly useful in longrun decisions
• Least cost combination of inputs and to produce an output
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11. THREE STAGES OF PRODUCTION
• Stage 1: average
Stage 2
Total Output
product rising.
• Stage 2: average
Stage 1
product declining (but
marginal product
positive).
• Stage 3: marginal
Stage 3
product is negative, or
total product is declining.
L
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Prachish on Sep 29,
2013
Figure 7.4 on Page 306
14. Short Run
Plant size is
fixed, labor is
variable
SHORT RUN VS. To increase production firms
LONG RUN
Short Run
Firms produce in the short run
increase Labor but can’t
expand their plant
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2013
15. ANALYSIS OF PRODUCTION
FUNCTION:
SHORT RUN
• In the short run at least one factor be fixed in supply but all other factors are capable of being
changed.
• Reflects ways in which firms respond to changes
in output (demand).
• Can increase or decrease output using more or less of some factors.
• Increase in total capacity only possible in the long run.
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16. ANALYSIS OF
PRODUCTION
FUNCTION:
SHORT RUN
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In times of rising
sales (demand)
firms can increase
labour and capital
but only up to a
certain level – they
will be limited by
the amount of
space. In this
example, land is
the fixed factor
which cannot be
altered in the short
run.
17. ANALYSING THE PRODUCTION
FUNCTION: LONG RUN
•
The long run is defined as the period of time taken to vary all factors of production
•
By doing this, the firm is able to increase its total capacity – not just short term capacity
•
Associated with a change in the scale of production
•
The period of time varies according to the firm and the industry.
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18. ANALYSIS OF
PRODUCTION
FUNCTION:
SHORT RUN
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If demand slows
down, the firm can
reduce its variable
factors – in this
example it reduces
its labour and
capital but
again, land is the
factor which stays
fixed.
19. LAW OF VARIABLE PROPORTIONS
Law of Variable Proportions (Short run Law of Production)
Assumptions:
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•
•
•
One factor (say, L) is variable and the other factor (say, K) is constant
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Labour is homogeneous
Technology remains constant
Input prices are given
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20. TOTAL PRODUCT FUNCTION (TP)
• Represents the relationship between the number of workers (L) and the TOTAL number of
units of output produced (Q) holding all other factors of production (the plant size) constant.
• For a coffee shop, output would be measured in “number of coffee cups a day”
• For a steel mill, output would be measured in “tons of steel produced a day”
Marginal Product (MP)
The additional output that can be produced by adding one more worker while holding plant size constant.
Average Product (AP)
•
Represents the amount of output produced by each worker on average.
Or
•
Output per worker.
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21. CONCLUSION
• Production function is simply a catalogue of production possibilities.
• It is an engineering concept and since money prices do not appear in
it,it merely depicts the physical relationship between the output and
inputs.
• by Geetika Prachish on Sep 29, 2013
