This action might not be possible to undo. Are you sure you want to continue?

BooksAudiobooksComicsSheet Music### Categories

### Categories

### Categories

### Publishers

Editors' Picks Books

Hand-picked favorites from

our editors

our editors

Editors' Picks Audiobooks

Hand-picked favorites from

our editors

our editors

Editors' Picks Comics

Hand-picked favorites from

our editors

our editors

Editors' Picks Sheet Music

Hand-picked favorites from

our editors

our editors

Top Books

What's trending, bestsellers,

award-winners & more

award-winners & more

Top Audiobooks

What's trending, bestsellers,

award-winners & more

award-winners & more

Top Comics

What's trending, bestsellers,

award-winners & more

award-winners & more

Top Sheet Music

What's trending, bestsellers,

award-winners & more

award-winners & more

Welcome to Scribd! Start your free trial and access books, documents and more.Find out more

say labour (L) and capital (K) . . K ) The production function is always in relation to a period of time. for a given state of technology. It does not take into account the price of either factors or the product The production function includes all the technically efficient methods of production. Eg. Production function is purely a technical relationship . It has no reference to money price.WHAT IS PRODUCTION FUNCTION? The production function shows a technical or engineering relationship between the physical inputs and physical outputs of a firm . we can write the production function as X = f ( L.suppose a firm is manufacturing a steel chairs with the help of Egtwo inputs . Then .

after a certain point .LAWS RELATED WITH PRODUCTION Law of variable proportions According to G.L. will make a smaller and smaller addition to the total product . Thirkettle if increasing quantities of one factor of production are used in conjuction with fixed quantity of other factors . then . each successive unit of a variable factor .

other are held constant or fixed. keeping the quantities of other factors fixed.Law of variable proportions The law which studies the relationship between one variable factor of production (say labour) and output . variable factor are homogeneous. It is based on the following assumptions only one input is variable. Prices of factors of production do not change . The law relates to a given period of time it assumes a short run the state of technology is given and remains unchanged. . Output is measured in physical units.

Exceptions to the normal shape of the isoquant a) Linear isoquant isoquants for perfect subsitute factors are straight lines sloping downward to the right.ie they take the shapes of right angles c) Kinked or linear programming isoquants - .the isoquant slopes slopedownward to the right Isoquants are convex to the origin Two isoquants never intersect each other An isoquant lying above and to the right of another isoquant represents a higher level of output. b) L.shaped isoquants isoquants for perfect complementary factors are L SHAPED .PROPERTIES OF ISOQUANT Isoquants have a negative slope.

. that aproducer is willing to sacrifice for an additional unit of labour so as to maintain the same level of output.MARGINAL RATE OF SUBSITUTION It indicates the rate at which one factor must be subsituted for another as onemoves down towards right along an isoquant The marginal rate of technical subsitution between labour and capital is defined as the number of units of capital .

The total output increases more than prportionately. . The total output increases prportionately. The scale of production is said to be increased when all inputs are increased proportionately and simultaneously. but the factor proportion remains constant. When a firm increases all inputs proportionately and simultaneously .LAWS OF RETURN TO SCALE Studies the behaviour of output when the scale of operations is changed . III. The total output increases less than prportionately. II. there are three possibilties : I.

Decreasing return to scale III. Incresing return to scale II.LAWS OF RETURN TO SCALE There are three stages to laws of return to scale ::I. Constant return to scale .

output increases at a decreasing rate. and the average and marginal physical product are declining. Because the output per unit of the variable input is improving throughout stage 1. although a firm facing a downward-sloped demand curve might find it most downwardprofitable to operate in Stage 1 . the latter reaching a maximum at point B (since the average physical product is at its maximum at that point).Law of variable proportions In Stage 1 (from the origin to point B) the variable input is being used with increasing output per unit. the employment of additional variable inputs increases the output per unit of fixed input but decreases the output per unit of the variable input. because output is rising while fixed input usage is constant. The optimum input/output combination for the pricepricetaking firm will be in stage 2. a price-taking pricefirm will always operate beyond this stage. In Stage 2. In this stage. However the average product of fixed inputs (not shown) is still rising.

the highest possible output is being obtained from the fixed input. At the boundary between stage 2 and stage 3. . too much variable input is being used relative to the available fixed inputs: variable inputs are over-utilized in the sense that overtheir presence on the margin obstructs the production process rather than enhancing it.STAGES OF PRODUCTION FUNCTION In Stage 3. The output per unit of both the fixed and the variable input declines throughout this stage.

The parameters a. Q=aLbCc If b + c = 1. b.The Cobb-Douglas Production CobbFunction The simplest production function is the CobbCobbDouglas model. and if b + c < 1. it shows increasing returns to scale. and c (the latter two being the exponents) are estimated from empirical data. the Cobb-Douglas model shows Cobbconstant returns to scale. diminishing returns to scale . and C for capital. If b + c > 1. L for labor. It has the following form: where Q stands for output.

Types of Production Functions Linear Production Function: A production function that assumes a perfect linear relationship between inputs & total output Leontief Production Function: A production function that assumes that inputs are used in fixed proportions CobbCobb-Douglas Production Function: A production function that assumes some degree of substitutability between inputs .

.

.

.

b. and c (the latter two being the exponents) are estimated from empirical data. If b + c = 1. . it shows increasing returns to scale. L for labor. diminishing returns to scale. It has the following form: Q=aLbCc where Q stands for output. If b + c > 1. and C for capital. the Cobb-Douglas model shows constant Cobbreturns to scale.The Cobb-Douglas Production CobbFunction The simplest production function is the Cobb-Douglas Cobbmodel. The parameters a. and if b + c < 1.

Download

Are you sure?

This action might not be possible to undo. Are you sure you want to continue?

CANCEL

OK

We've moved you to where you read on your other device.

Get the full title to continue

Get the full title to continue listening from where you left off, or restart the preview.

Restart preview

scribd