ECONOMICS WORKSHOP
AT K V 9 BRD PUNE
5th & 6th OCTOBER 2015
COURSE DIRECTORMRS DEEPIKA N KARNANI
PRINCIPAL
K V OJHAR
RESOURCE PERSON-
Ms. SHALINI JHA
PGT (Economics)
K V 9 BRD PUNE
PREPARED BY:
I.P.S. Yadav
k. v. no. 1, jhansi cantt.
Agra region
group 1
PRODUCTION FUNCTION
Production
function is the
functional
relationship
between physical
inputs and
physical outputs
of a commodity.
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
FIXED AND VARIABLE
FACTOR
Fixed
factor:Fixed factor are those
the application of
which does not change
with change in output.
Variable
factor:Variable factor are
those the application
which varies with
change in output.
TOTAL PRODUCT
• It is the sum total of output produced by all
the units of a variable factor used in the
process of production along with some
amount of the fixed factors.
Example :-
If 6 units of Labour is
combined with some fixed
amount of Capital and if their
contribution to output is
5,6,7,10,20 units, then
TP = 5+6+7+10+20=48
MARGINAL PRODUCT
• It is the additional output due to the use of an
additional unit of the variable factor, other
factors remaining constant.
AVERAGE PRODUCT
• It is the output per unit of the variable factor
used in the process of production.
Example:40x = f(5L,4K)
AP =TP = 40 = 8
L
8
LAW OF VARIABLE
PROPORTION
• Law of variable proportion states that as more
and more of the variable factor is combined
with the fixed factor , a stage must ultimately
come when marginal product of the variable
factor starts declining.
EXPLANATION OF THE LAW
Units of land
Units of
labour
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
7
15
0
1
8
14
-1
Increasing MP
implies increasing
returns to a factor
Diminishing MP
implies diminishing
returns to a factor
Negative MP implies
negative returns to a factor
T
TOTAL PRODUCT
TP Curve
K
L
S
MARGINAL PRODUCT
Increasing
Returns
Stage: I
Diminishing
Returns
Negative
Returns
Stage :II
E
Stage: III
MP Curve
L
S
Units of the variable factor
CAUSES OF INCREASING
RETURNS TO A FACTOR
Fuller utilisation
of the Fixed
Factor
Increased
Efficiency of the
Variable Factor
Better Coordination
between the
Factors
CAUSES OF DIMINISHING
RETURNS TO A FACTOR
Fixity of the Factor
Imperfect Factor
Substitutability
Poor Co-ordination
between the
Factors
ASSUMPTIONS OF THE LAW
Ratio in which factors of production
are combined can be changed
Units of the variable factor are
homogeneous or equally efficient,
and are increased one by one.
POSTPONEMENT OF THE LAW
The law of variable
proportions may become
inoperative for the time
being due to improvement in
the technique of production.
Also, the applicability of the law
can be postpone when some
substitute of the fixed factor is
discovered.