Production of wheat depend upon various inputs such as Land, Labour and Capital that leads to the output. As a producer, one will calculate how much of land and labour or other factors are required to produce the given quantity of a commodity (wheat). Production function helps us study the functional relationship between physical inputs and physical output of a commodity. It is purely a technical relation which carries factor inputs and output.
Y: maximum possible output of a commodity
X1: amount of factor-1(or input 1)
X2: amount of factor-2(or input)
It is equally important to note that a production function is always defined with respect to a given technical know how. Over ...view middle of the document...
Output increased by increasing variable factor of inputs only.
It is a production function in which factor ratio remain constant at all level of output.
Output increased by increasing all factor of inputs.
DISCUSS TOTAL PRODUCT(TP), MARGINAL PRODUCT(MP), and AVERAGE PRODUCT (AP) OF VARABLE FACTORS
TP is the total of all units of the variable factors used in the process of production.
MP is additional output result to an additional unit of the variable factor, other factor remaining consist.
MP = CHANGE IN TOTAL PRODUCT/CHANGE IN VARIABLE INPUT (http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=marginal+product)
MP can be negative in certain situations, For example if there is excessive employment in some public sector undertakings in India, more employment creates discrepencies in overall efficiency of the workers, this leads MP to happen to be negative. In such a situation , withdrawal of some workers is expected to improve productivity and the level of TP.
AP is outcome per unit of the variable factor used in the factor of production
AP = TOTAL PRODUCT/VARIABLE INPUT
THE LAW OF DIMINISHING RETURNS OR LAW OF VARIABLE PROPORTIONS:
Law of Diminishing Returns states that as more and more of the variable factor is combined with the fixed factors of production, a stage must come when marginal product of the variable factor starts declining.
Assumption of the law:
The Law of variable proportion is only possible if we consider some assumption, which are mentioned as follows:
(1) The output can only be increased only by combining more of the variable factor with the fixed factors
(2) All units of variable factors are homogeneous is equally efficient.
(3) Some factors are fixed, output can only be increased by application increasing variable factors of production.
(4) State of technology does not change.
OBSERVATION: RELATION BETWEEN MARGINAL PRODUCT AND TOTAL PRODUCT
Following are the observation on the relation between Marginal product and Total Product.
(1) When marginal product is increasing, Total Product increases at increasing rate
(2) When Marginal product starts diminishing Total product increases at decreasing rate
(3) When Marginal product is negative, Total production shows downward trend
RELATION BETWEEN AVERAGE PRODUCT AND MARGINAL PRODUCT
(1) Average product increases, when Marginal Product is greater than Average Product.
(2) Average product decreases when Marginal Product is less than Average product.
(3) Average Product is at its maximum when Average Product is equal to Marginal Product.
(4) Marginal Product may be zero or negative, but Average Product continues to be Positive.
THREE STAGES OF PRODUCTION
(1) Stage 1,...