PPT

1. Presented By:- Riya Raj
Submitted To:- Dr. Shalini Sharma

2.  Input
 Output
 Production Function
 Short Run Production
 LAW of Diminishing Return
 3 Stages of Production

3.  Any activity which creates value is
Production
 In other words, production is transformation
of input (such as capital, equipment, labor,
and land etc.) into output such as good or
service.
 E.g. transporting sand, operating a jeweler
store, drilling for oil, recruiting new
employees, designing a system to measure
air pollution, producing biscuits,
cultivation, trading and so on.

4.  A production function expressed with
reference to a particular period of time.
 It expresses a physical relation because both
inputs and outputs are expressed in a
physical terms.
 Production function describes a purely
technological relation because what can be
produced from a given amount of inputs
depends upon the state of technology.

5. Before analyzing the types of production function it will be useful to
understand the meaning of following important terms :
Factors of production are broadly classified into two categories :
1. Fixed Factors
2. Variable Factors
Fixed Factors
 The factor inputs which can not be varied in the short-period,
as and when required are called fixed factors.
 Examples of Fixed factors are : Plant, machinery, heavy
equipments, factory building, land etc.
Variable Factors
 The factor inputs which can easily be varied, in the short-
period as and when required, are called variable factors.
 Examples of Variable Factors are : Labor, Raw material, Power,
Fuel etc.
 The distinction between fixed factors and variable factors
appears only in the short-period. In the long-run, all the
factors of production become variable factors.

7.  Short-Run Production Function
 Long-Run Production Function

8.  In the short run all other factors are fixed in
supply but at least one factor is capable of
being changed to have more output.
 This aspect of production function is known
as Law of variable proportions.
 Proportional relationship between Production
and factors of production is referred to as
Law of Returns to a Factor.

9.  In the long run it is possible for a firm to change
all inputs up and down in accordance with its
scale. This is known as Return to scale.
 When a producer changes all the factors of
production in the same proportion, the
proportional relationship between Production
and factors of production is referred to as Law
of Return of Scale
 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.

10.  Production function express the
technological relationship between physical
inputs and physical output of a firm under
given technology.
 A production function may be write as
follows Where,
 Q = Output (total product)
 Q = f(N,L,K,E,…..)
 N (Land), L(labor), K(capital),
E(entrepreneurship), ……… are the inputs.

11.  There are three concepts of product such
as :
1. Total Product
2. Average Product
3. Marginal Product

12.  Total product refers (TP) to the total
volume of goods and services produced by a
firm during a given period of time.
TP = AP*L = Ʃ MP
 Where L is quantity of a factor
 AP is a average productivity of a factor
 MP is the marginal productivity of a factor

13.  Average Product (AP) is output (total
product) per unit of a factor.
Where,
 AP = Q/L
 Q is total product
 L is quantity of a factor input

14.  Marginal Product (MP) is the rate of change
in total product with respect to a factor.
 In other words, marginal product is the
addition to total product by utilizing one
more one unit of variable input to the
production process, keeping other factor
fixed.
MP = dQ/dL
Where,
 dQ is change in total product
 dL is change in quantity of a factor input.

17.  The factor input labour at point o is equal to
zero, the factor input labour is equal to zero,
The overall product value would also be
zero. Clearly, the importance of MP and AP
are going to be nil. So all the three, TP, AP
and MP curves. It begins with the origin. The
TP curve is convex from below first and
concave afterwards.
 The MP curve reaches the limit before the AP
curve, since the MP curve must decrease
when the average product is maximum.

18.  When AP is rising, MP is greater than AP
 When AP is falling, MP is less than AP
 When AP reaches it maximum, AP=MP

19. Stage 1: Stage of Increasing Returns:
 AP is increasing and the MP is greater than the AR Up
to point B on the TP curve Stage 1 exist.
 AP is increasing, but MP is increasing first up to point
A then decreasing.
Stage II: Stage of Decreasing Returns
 Both AP and MP is decreasing. But. MP is positive.
 The portion of TP curve between B and C represents
this stage.
Stage III: Stage of Negative Returns
 TP is diminishing and the MP is negative.
 The portion of TP curve which lies to the right of
point C represents this stage.

20.  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.