2. Production
MEANING
Process in which the physical inputs are transformed into physical output.
Output is a function of inputs
PRODUCTION
FUNCTION
The functional
relationship between
physical inputs and
physical output of a
firm.
4. The production function can be algebraically expressed in an equation in which the
output is the dependent variable and inputs are the independent variables.
The equation can be expressed as:
where,
Q stands for the quantity of output,
L,K,M stands for the quantities of factors labour, capital and raw materials
respectively.
Q = f (L,K,M)
5. Firstly, the production function like the demand function must be
considered with reference to a particular period of time.
Secondly, the production function of a firm is determined by the
state of Technology.
6. CONCEPTS OF PRODUCT
Regarding the physical production by factors there are three concepts
TOTAL
PRODUCT
AVERAGE
PRODUCT
MARGINAL
PRODUCT
7. TOTAL PRODUCT
Total product of a
factor is the amount
of total output
produced by a
given amount of the
factor, other factors
held constant.
As the amount of a
factor increases
the total output
increases.
8. UNITS OF
LABOUR
(L)
TOTAL
PRODUCT
(QUINTALS)
(Q)
1 80
2 170
3 270
4 368
5 430
6 480
7 504
8 504
9 495
10 480
● when with a fixed quantity of capital (K) more units
of labour are employed the total product is
increasing in the beginning.
● when one unit of labour is used with a given quantity
of capital 80 units of output are produced. With two
units of labour 170 units of output are produced and
so on.
● After 8 units of employment of labour the total output
declines with further increase in labour input.
9. The TOTAL PRODUCT CURVE
At the lower end, where labor and output are low, the curve is
convex. Convexity means that as labor is added, output is
increasing at an increasing rate.
In the middle production range, the slope of the total
product curve gets flatter, and the curve becomes
concave. Concavity means that the output is
increasing but at a decreasing rate.
Finally, the total product curve hits
a maximum point after which
output decreases with each
additional worker.
10. AVERAGE
PRODUCT
Average product of a factor is the total
output produced per unit of the factor
employed. Thus,
AP=Q / L
Where Q stands for total
product, L for the number of
variable factors employed.
11. UNITS OF
LABOUR
(L)
TOTAL
PRODUCT
(QUINTALS)
(Q)
AVERAGE
PRODUCT
(QUINTALS)
Q/L
1 80 60
2 170 85
3 270 90
4 368 92
5 430 86
6 480 80
7 504 72
8 504 63
9 495 55
10 480 48
We can measure the
average product from the
total product data. Thus,
when two units of labour are
employed the average
product is 170/ 2 = 85.
Similarly when three units of
labour are employed the
average product is 270/ 3 =
90 and so on.
12. THE AP CURVE
From the Total Product curve,TP we can measure the Average Product of
Labour. Thus, when OL1 units of Labour are employed, the total product is
equal to L1A and therefore the average product of labour equals L1A / QL1
which would be equal to the slope of the ray QA.
Similarly, when QL2 units of Labour
are employed, the total product is
equal to L2B and therefore the
average product of labour would
equal to L2B / QL2 which would be
equal to the slope of the ray QB.
Further, with the
employment of labour
equal to QL3 the
average product will be
measured by the slope of
the ray QC.
13. It has been generally found that as more units of a factor
are employed for producing a commodity , the average
product first rises then falls.
The average product curve of a variable factor first rises and
then it declines.
The average product curve has an inverted U-shape.
14. MARGINAL PRODUCT
Marginal product of a
factor is the addition to
the total production by
the employment of an
extra unit of a factor.
15. UNITS OF
LABOUR
(L)
TOTAL
PRODUCT
(QUINTALS)
(Q)
MARGINAL
PRODUCT
(QUINTALS)
ᐃQ/ ᐃL
1 80 80
2 170 90
3 270 100
4 368 98
5 430 62
6 480 50
7 504 24
8 504 0
9 495 -9
10 480 -15
Suppose when two workers are employed to produce wheat in an
agricultural farm and they produce 170 quintals of wheat per year.
Now, if instead of two workers, three workers are employed and as a
result total product increases to 270 quintals. Then the third workers
added 100 quintals of wheat to the total production. Thus, 100 quintals
is the marginal product of the third worker.
It can be seen from the table that the marginal
product of labour increases in the beginning and then
diminishes. Marginal product of the 8th unit of labour
is zero and beyond that it becomes negative.
Mathematically if employment of labour increases
by ᐃL units which yield an increase in total
output by ᐃQ , the marginal physical product of
labour is given by ᐃQ/ ᐃL. That is ,
MPL = ᐃQ/ ᐃL
16. At any given level of employment
of labour the marginal product of
labour can be obtained by
measuring the slope of the total
product curve at a given level of
labour employment .
The marginal physical product
curve of a variable factor can also
be derived from the total physical
product curve of labour.
17. For example in the above
given figure when QL1 units
of labour are employed the
marginal physical product of
labour is given by the slope
of the tangent drawn at point
A to the total product curve
TP.
The marginal
product of a factor
will change at
different levels of
employment of the
factor.
Again when QL2 units of labour
are employed the marginal
physical product of labour is
obtained by measuring the slope
of the tangent drawn to the total
product curve TP at point B
which corresponds to QL2 level
of labour employment.
It has been found that
marginal product of a
factor rises in the
beginning and then
ultimately falls as
more of it is used for
production.
THE MP CURVE
