production function in short run

1. The production process:
The behavior of profit – maximizing firms
Prepered by
Dr.Mohamed Osman
Lecturer of public economics faculty of commerce-Alexandria University

2. Production Process
First: Definitions
1-Production:-Is the process of transforming
inputs into outputs
2- Firms: An organization (Could be a person or
a group of people) decides to produce a good
or service to met the demand.

3. The behaviour of Profit –Maximizing Firms:
All firms must make several basic decisions to
achieve their primary objective (maximum
profits) by answer the following questions

4. Production Function
The production function is a mathematical
expression of the relationship between
outputs & inputs (factors of production).
*TP (or Q)=f (L , K)
• Where:
* TP=Q=total product=quantity of output
*L =labour (number of workers)
* K=capital (number of machines)

6. Production in the Short Run
= =

7. Production in the short run
*The short run is a time period in which at least
one input is constant .
*In our model, ( K ) is assumed to be constant,
while ( L ) is variable.
Assumption of the Model:-
a) Only two Inputs: labour is variable & capital is fixed.
b) labour is homogeneous.
c) A given level of technology.

8. • Example:
TPLK
007
517
1827
3037
4047
4557
4967
4977
4887

9. APLMPLTPLK
--007
55517
9131827
10123037
10104047
954557
8.244967
704977
6-14887

12. *Notes:-
*When (TP) reaches maximum, (MPL) reaches zero.
* When (APL) rising (MPL) is above (APL).
* (APL) intersect (MPL) when (APL) reaches maximum.
* When (APL) decreasing (MPL) is lower (APL).
*(APL) cannot be negative because, APL=TP/L & both
of (TP) & (L) are positive.
*Producer must work in the second stage of
production ( diminishing marginal return ), at which
TP is increasing at a decreasing rate & MPL is
decreasing.

13. • Law of diminishing Return:
The Law of diminishing return states that
employing one more worker with a fixed
number of machines, will eventually cause
the marginal product of labor (MPL) to
decrease.