There are two types of production functions: short run and long run. The short run production function shows output increasing with only variable factors, while the long run allows increases in all factors. The document then explains the law of variable proportions using a numerical example showing how total, marginal, and average product change as labor is increased relative to fixed land. It describes the stages of increasing, decreasing, and negative returns as marginal product first rises then falls and becomes negative.

1. SESSION : 2016-17
ASSIGNMENT OF BUSINESS ECONOMICS
SUBMITTED TO :
DR. RAJESH SHARMA
SUBMITTED BY :
KHUSHALI VERMA
B.COM(H), 1st YEAR

2. Production Function
Shows physical
relationship between
input and output.

3. Que.1 : What are the types of Production
Function?
 There are two types of production function :
1. Short run production function.
2. Long run production function.

4. Short run production function
: Output is increased by increasing only variable factors, no
change in fixed factors.
 All factors are fixed and others are variable.
 Factor Ratio changes with increase in output.
 Technique of production remains same with increase in output.
 Efficiency of Factors of Production remains same with increase
in output.

5. Long run production function
 Output is increased by increasing all factors, there is no fixed
factors.
 All factors are variable.
 Factor Ratio remains same with increase in output.
 Technique of production changes with increase in output.
 Efficiency of Factors of Production changes with increase in
output.

6. Que. 2: Explain “Law of Variable Proportion”.
Ans. With change in ratio of variable factor and fixed factor the
resultant cange in Total Product (TP) , Marginal Product (MP) and
Average Product(AP).
ASSUMPTIONS :
 Short period concept.
 Related to short run production function.
 Some factors are fixed and others are variable.
 Technique remains same.
 Efficiency of factors remains same.

7. LAND
(fixed factor)
LABOUR
(variable
factor)
TOTAL
PRODUCT
MARGINAL
PRODUCT
1 1 2 2
1 2 5 3
1 3 9 4
1 4 12 3
1 5 14 2
1 6 15 1
1
1
7
8
15
14
0
(-) 1

9. STAGE :1
INCREASING RETURNS TO FACTOR / LAW OF
INCREASING RETURN

10. With a change in ratio of variable factor and fixed factor,
Marginal product increases, Total Product increases at increasing
rate.
Explanation :
• From 1st labour to 3rd labour , Marginal Product increases
and reaches maximum and Total Product increases at increasing
rate.
Causes / Reasons :
• Fuller utilization of resources
• Division of labour.
• Specialization.
• Optimum combination of factors and better coordination
between factors.

11. STAGE : 2
DECREASING RETURNS TO FACTOR/ LAW OF
DECREASING RETURN

12. . With a change in ratio of variable factor and fixed factor ,
Marginal product decreases, Total Product increases at
decreasing rate.
Explanation :
• From 4th labour to 7th labour, Marginal Product decrease
and Total Product increases at decreasing rate.
• Point ‘B’ on Total Product shows Point of Inflexion.
• At 7th labour Marginal Product becomes zero and Total
product becomes maximum.

13. Causes / Reasons :
• Scarcity of resources.
• Use beyond optimum factors of production.
• Lack of Perfect Substitutes.
• Poor condition between factors.

14. STAGE : 3
NEGATIVE RETURNS TO FACTOR / LAW OF
NEGATIVE RETURN

15. With a change in ratio of variable factor and fixed factor,
Marginal Product becomes negative , Total Product start
decreasing.
Explanation :
• From 8th labour Marginal Product becomes negative and
Total Product start decreasing.