Economics - Production Function and Laws of Production
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Short Run
Long Run
Factors Effecting Production Function
Conclusion
Lain of Variable Proportions
Assumption
Conclusion
Law of Diminishing Returns
Returns to Scale
Short Run
Short Run is a period of time in which the quantities of some inputs are
fixed and they can be varied.
Long Run
Long Run is a period of time in which the quantities of all inputs can be
worried.
Qs. What is production functions? How does it help in the understanding
of producer equilibirium?
It refers to a allow of input's resulting in a flow of output over a period
of time, leaving prices a side. It shows the maximum amount of output
can be produced from a given set of input in existing state of technology
the output change when input quantity changed.
Factors Effecting Production Function
It depends on
A. Quantity of resources used.
B. State of Technical Knowledge.
C. Possible Process.
D. Size of the Firms.
E. Nature of Firm's organisation.
F. Relative prices of the Factors of Production.
As these factors change production function also change Production plant
size can be change in Long run but not in Short run.
X = f (a,b,c,d,.....)
Where
X = output per unit time
a,b,c,d = are input used for making goods.
In order to understand production function we have few things in mind.
i. There is a technical relationship the input or output of product
without considering price factor.
ii. Combination of factor of production gives output. Output increases as
the factor of production organised in a good number.
iii. Preductively depends on the nature of technology used, like labour,
intensive firm depend on their quantity of labour.
A change in technology will can shift to another production function.
According to Cubb Dougler production functin
Q = KLaC
Where
Q ----> Quantity Manufactured
L ----> Labour Employed
K and a ----> lue constants and (a < 1)
C ----> Capital Used.
Conclusion
The study of the theory of production is the study of production
function itself. It helps to understand the law of proportin where
keeping on a factor of production we increase the other factors.
Qs. State and explain the law of variable proportion Illustrate
diagramitically
OR
Discuss the law of variable proportion and explain the conditions of its
applicasity.
Lain of Variable Proportions
If we know that the outputs depends on the quantity and quantity of
the factors of production. So in order to increase output we must have
to change some factor production, keeping other factor constant. The
law of variable proportion studies the effect of output of varriation in
factor proportion.
As the proportion of one factor is combination of one factor increased
after a point find the marginal and then the average product of that
factor will diminish.
OR
An Increase in some inputs relative to other comparatively fixed inputs
will cause outputs to increase but after a point the extra output relating
from the some addition of input will become less and less.
Assumption
i. Technology remains constant other wise marginal and the average
curver vise instead diminishing.
ii. Only one point is variage other being be constant.
iii. It assume a short run between in long run and all inputs can be
changed.
Stage 1
As we see that from 1 to 4 workers work on 40 acres gives the higher
output and Marginal product increase.
Stage 2
We see when increase the number of worker from 5 to 8 the total
product increase but marginal product remain same.
Stage 3
After increasing more work we see still total product increased but
marginal product decrease.
Conclusion
So if analyse if we increase more worker we got increase in TP and MP
but as we increase so much worker TP may be increase and MP decline
and it is fact so many worker spoil the good or made the quantity
difference.
Qs. Write notes on Laws of Diminishing Returns?
Law of Diminishing Returns
Diminishing Returns occur in all when labour input increases.
There is a change in output as we increase any one variable factor
keeping offers constant.
Returns to Scale
A change in scale occurs when there is an equal % change in the use of
all firms input. If we increase 1 worker and one machine for knitting
sweater from 4 worker and 1 machine. we double scale of production.
There are three types of possible cases.
1. Constant returns to scale.
2. Increasing returns to scale.
3. Decreasing returns to scale.
1. Constant Returns to Scale.
Constant returns to scale occur when the % increase in firms output is
equal to the % increase in its inputs. It means when a firm doubles all
its input its output exactly double. Example (Put yourself)
2. Increasing Returns to Scale OR Economics of Scale.
Increasing return to scales occur when the % increases in output
exceeds the % increase in output.It means when a firm double its input
the output will be move then double. Economics of scale occur in
production process. Where increased output exises a firm to use a more
productive technology. Example (by yourself)
3. Decreasing Returns To Scale OR Diseconomics of Scale.
When the % increase in output is less than % increase in inputs then we
say Decreasing Return to Scale occur. It means when a firm double its
input and output increases 50% it means diseconomics of scale are
present. Example (By yourself)
Example
Suppose a knitting firm with one worker and 1 knitting machine gives 4
sweater.
* If he doubles the firm's input to 2 knitting machine and 2 workers and
they gives 15 sweaters a day. we said increasing return to scale or
Economics of scale.
* If the increase 4 knitting machine and 4 workers and then gives 25
sweaters a day, it means decreasing to return to scale of diseconomics
of scale.