PRODUCTION FUNCTION The relationship between physical input and physical output of a firm is generally referred to as production function.

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PRESENTED BY- KAKOLI BHAKAT

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PRODUCTION
FUNCTION
 The relationship between physical
input and physical output of a firm
is generally referred to as
production function.
 Qx = f(L,K)
 Qx- Production of commodity x
 L-Function of labour
 K-Fuction of capital

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Short run production function
 It refers to the period of time in which a firm cannot
change some of its factors like plant, machinery,
building, etc.
e.g., a farmer may have fixed amount of land.

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Long run production
function
 Long run production function shows
relationship between inputs and
outputs under the condition that
both the inputs, capital and labour,
are variable factors. Eg., plants,
machinery

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VariableFactors
It refer to those factors,
which can be changed in
the short run.
For example, Labour,
raw material, etc.

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FixedFactors
It refer to those factors
which cannot be
changed in the short
run.
For example, Capital,
land, plant and
machinery, etc.

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Law of variable proportion
The law of variable proportion
states that as we increase the
quantity of only one input,
keeping other inputs fixed, the
total product increases at an
increasing rate (convex shape) in
the beginning, then increases at
diminishing rate (concave shape)
and after a level of output
ultimately falls.

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Three phases
PHASE 1: Phase of increasing return or Increasing
Return to factor. TP increases at an increasing rate and
MP also increases
PHASE 2: Stage of Diminishing Returns or
Diminishing Return to factor. TP increases at decreasing
rate and MP falls.
PHASE 3: Phase of Negative returns or Negative
Return to factor. TP starts decreasing and MP not only
falls, but also becomes negative.

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