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• Example of lathe machine and one worker required for one unit of product.
• Example of cement plantFirst running at 80% capacity then at 100% with more labor
• Again Example of cement plantThis time we take 2 cement plants with increase in labor
• Presentation4

1. 1. • Ms n.Magqabaza • Student no:201133269 • email: thandazamagqabaza@gmai l.com
2. 2. TABLE OF CONTENT • PRODUCTION FUNCION • DEFINITION OF PRODUCTION FUNCTION • IMPORTANT FACTS ABOUT PRODUCTION FUNCTION • • • • • • • TYPES OF PRODUCION FUNCTION USES OF PRODUCTION FUNCTION STAGES OF PRODUCTION FUNCTION FACTORS AFFECTING PRODUCTIVITY SCHEDULES AND GRAPHS CONCLUSION LIST OF REFARANCES
3. 3. by tanveerabbott on Jan 06 2013 Inputs Process Land Labour Capital Product or service generated Output
4. 4. PRODUCTION FUNCTION
5. 5. WHAT IS PRODUCTION? It’s an activity that transforms input into output. • by tanveerabbott on Jan o6,2013
6. 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 • by Geetika Prachish on Sep 29, 2013
7. 7. TYPES OF PRODUCTION FUNCTION • The fixed proportion production function. • The variable proportion production • by tanveerabbott on Jan 06,2013 function.
8. 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. • by tanveerabbott on Jan 06,2013
9. 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. • by tanveerabbott on Jan 06,2013
10. 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 • by tanveerabbott on Jan 06,2013
11. 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 • by Geetika Prachish on Sep 29, 2013 Figure 7.4 on Page 306
12. 12. FACTORS AFFECTING PRODUCTIVITY Technology Inputs • Labor • Capital • Machinery • Land • Raw material • Power Time period by tanveerabbott on Jan 06,2013
13. 13. SCHEDULES AND GRAPHS SHORT RUN PRODUCTION FUNCTION BY GEETIKA PRACHISH ON SEP 29, 2013
14. 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 by Geetika Prachish on Sep 29, 2013
15. 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. • by tanveerabbott on Jan 06,2013
16. 16. ANALYSIS OF PRODUCTION FUNCTION: SHORT RUN by tanveerabbott on Jan o6 2013 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. 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. • by tanveerabbott on Jan 06,2013
18. 18. ANALYSIS OF PRODUCTION FUNCTION: SHORT RUN by tanveerabbott on Jan o6 2013 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. 19. LAW OF VARIABLE PROPORTIONS Law of Variable Proportions (Short run Law of Production) Assumptions: • • • • One factor (say, L) is variable and the other factor (say, K) is constant • by Geetika Prachish on Sep 29, 2013 Labour is homogeneous Technology remains constant Input prices are given 19
20. 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. • by Geetika Prachish on Sep 29, 2013
21. 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
22. 22. QUESTIONS ??? by tanveerabbott on jan,o6 2013
23. 23. Thank You
24. 24. LIST OF REFERANCES • http://www.slideshare.net/geetsrivastava/production-function-26663899?qid=36099a90-6649-4cc6-97bdafd3d90257fd&v=default&b=&from_search=1 accessed (08/03/2014) • http://www.slideshare.net/tanveerabbott/production-function-15871760?qid=36099a90-6649-4cc6-97bdafd3d90257fd&v=default&b=&from_search=11 accessed(08/03/2014) • https://www.google.co.za/search?q=PRODUCTION&espv=210&es_sm=93&source=lnms&tbm=isch&sa=X&ei= wvoaU7zbO9GshQe3tYCwAw&ved=0CAkQ_AUoAQ&biw=1280&bih=880#facrc=_&imgdii=_&imgrc=1L2VYFYInKvLM%253A%3BmiwHgo0TxPXVSM%3Bhttp%253A%252F%252Faluminium.matter.org.uk%252Fc ontent%252Fmedia%252Fimages%252FsheetcanProductionStages.jpg%3Bhttp%253A%252F%252Faluminium.matter.org.uk%252Fcontent%252Fhtml%252 Feng%252Fdefault.asp%253Fcatid%253D199%2526pageid%253D2144416756%3B815%3B526 :accessed (08/03/2014) • http://www.npr.org/blogs/thesalt/2013/01/11/169150598/in-the-battle-between-health-and-taste-why-white-breadstill-wins accased(08/03/2014)