PPT on Production Function

1. PRODUCTION FUNCTION
Dr.S.Gayathri
Asst. Professor
Dept of M.A.HRM
Ethiraj College for Women

2. PRODUCTION FUNCTION
 States the relationship between inputs and outputs
 Inputs – the factors of production classified as:
 Land – all natural resources of the earth – not just ‘terra
firma’!
 Price paid to acquire land = Rent
 Labour – all physical and mental human effort involved in
production
 Price paid to labour = Wages
 Capital – buildings, machinery and equipment
not used for its own sake but for the contribution
it makes to production
 Price paid for capital = Interest

3. PRODUCTION FUNCTION
Inputs Process Output
Land
Labour
Capital
Product or
service
generated
– value added

4. PRODUCTION FUNCTION
 Mathematical representation
of the relationship:
 Q = f (K, L, La)
 Output (Q) is dependent upon the
amount of capital (K), Land (L) and
Labour (La) used

5. TYPES OF PRODUCTION FUNCTION
1. Short Run Production Function
2. Long Run Production Function

6. SHORT RUN PRODUCTION FUNCTION:
 In the short run all other factors are fixed
in supply but at least one factor is
capable of being changed to have more
output.
 This aspect of production function is
known as Law of variable proportions.
 Proportional relationship between
Production and factors of production is
referred to as Law of Returns to a Factor

7. LONG RUN PRODUCTION FUNCTION:
 In the long run it is possible for a firm to change all inputs up
and down in accordance with its scale. This is known as Return
to scale.
 When a producer changes all the factors of production in the
same proportion, the Proportional relationship between
Production and factors of production is referred to as
Law of Returns to Scale
 By doing this, the firm is able to increase its total capacity –
not just short term capacity
 Associated with a change in the scale of production

8. Production Function
Short run Production Function
Returns to a factor
One factor Variable
Short run Analysis
Law of variable proportions
Long run Production Function
Returns to Scale
All factors variable
Long run Analysis
Law of return to scale

9. LAWS OF RETURNS
1. Law of variable proportions.
2. Law of Returns to Scale

10. LAW OF VARIABLE PROPORTIONS
 Law of variable proportions stats that as we
increase quantity of only one input keeping
other inputs fixed, Total product initially
increases at an increasing rate, then at a
decreasing rate and finally at a negative rate.

11. LAW OF RETURNS TO SCALE
 Law of returns to scale refers to increase in
output as a result of increase in all factors in
the same proportion.

12. STAGES OF RETURNS TO SCALE
1. Increasing Return to Scale
( Due to many type of internal economies)
1. Constant Return to Scale
(After reaching certain level of production internal and external
economies are balanced)
1. Diminishing Return to Scale
( Due to emerging diseconomies, Large company creates
difficulties of control)