Theory of production

2. • The production function is a graph or
figure that shows how a change in one
production variable affects total
output.
The Production Function

3. • Production can be analyzed in terms
of short-run or long-run relationships
between inputs and outputs.
The Production Function

4. Long Run
• A time period in which all factors of
production change

6. Short Run
• A time period in which only one factor of
production changes

9. • Marginal product is the extra output
or change in total product caused by
adding one more unit of input.
The Production Function

11. • Marginal product changes as more
workers are added.
• In Stage I of the production function,
the marginal product increases with
each additional worker.
Stages of Production

13. • Stage II of the production function
operates on the principle of
diminishing returns
• Marginal products are still positive,
but decrease steadily.
Stages of Production

15. • In Stage III of the production function,
the company has hired too many
workers, and they interfere with one
another and with production, causing
marginal product to become negative.
Stages of Production