Production function and

returns to a factors

Items-

(1)- concept of production

(2)- T.P, M.P
(3)-Law of V.P
(4)- Return of scale

CONCEPT OF PRODUCTION

Output need input. Land, labour and capital are the common input for the production
of goods and services as a producer. For example, that 10 units of capital and 5 units
of labour are required to produce 100 units of the commodity. It is this relationship
between physical input ( i.e., 10 units of capital and 5 units of labour) which is known
as production function.
production function, thus, studies the function relationship between physical input
and physical output of a commodity. Usually, it is expressed in terms of the following
equation:
Qx= F (L,K)
it say that Qx (production of commodity-X) is the function of L (labour) and K (capital)

production function is the relation between a firms production

(output) and the material factor of production (input).

T.P (Total Production)

M.P (Marginal production)
T.P (total production)

It is the sum total of output production by all the units of a variable factor along with
some constant amount of the fixed factor used in the process of production. Let us
consider L(labour) as the variable factor and K (capital) as the fixed factor. assumed
also that along with some constant application of the fixed factor (say one machine),
the production is using 1 through 6 units of the variable factor. The resultant output is
10,12,15,12,10,6 units of the commodity corresponding to each unit of the commodity
corresponding to each unit of labour used . In such situation,
T.P= 10+12+15+12+10+6
= 65 units of the commodity.

TP is the sum total of output of each unit of the variable

factor used in the process of production. This is also called
total return of the variable factor.

M.P (Marginal product)

M.P refers to change in TP when one more unit of factor is used (fixed factor reaming
constant). EXAMPLE: if output increases from 40 to 45 units when the input of
labour is increased from 5 to 6 units (input of capital remaining constant), then
MP =
45
40
=
5

Tp when 6
units of
labour used

TP when 5
unit of
labour are
used

Increases in
TP when 1
more unit of
labour is
MP= 5 is related to the 6th unit of L TP of units of labour. Likewise
used
MP of 10th unit of L = TP of 10 unit of L TP of 9 (or 10-1) units of l
or
MP of 1st unit of L = TP of 1 units of L TP of 0 (or 1-1) units of l, we can say that:
mpn= TPn TPn-1

MP refers to change in TP when one more unit of the

variable factor is used, fixed factor remaining constant. Tp
is the sum total of MP corresponding to each unit of the
variable factor .

The law of variable proportions

Law of variable proportions state that as more and more of the variable
factor is combined with the fixed factor, marginal product of the variable
factor may initially rise, but eventually a situation must come when
marginal product of the variable factor declining. Marginal product may
become zero or even negative.

Tabular and diagrammatic presentation of

the law

The law of variable proportions-increasing

return
Unit of
land
1

Unit of
labour
1

Total
production

Marginal
production

2
2

12

3
4

14

15

15
2

14
1

Increasing MP
implying
increasing
return to a
factor
Diminishing MP
implying
diminishing
returns to a
factor
Negative MP
implying
negative
returns to
factor

 stage I is between O and K on the curve TP in this zone, MP is increasing and

TP is increasing at the increasing rate.
stage ll is between K to T . Is this zone, MP is decreasing and TP is increasing
at the decreasing rate .
stage lll beyond T . Now TP is start declining because MP is negative

Causes of increasing returns to a factor

Fuller utilisation of the fixed factor
Division of labour and increase in
efficiency
Better coordination between the factors

Returns to Scale
Introduction

This topic is a part of study of production function. A production function is

an expression of quantitative relation between change in inputs and the
resulting change in output. It is expressed as:
Q = f (i1, i2 ......in)
Where Q is output of a specified good and i1, i2 .in are the inputs usable
in producing this good. To simplify let us assume that there are only two
inputs, labour (L) and capital (K), required to produce a good. The
production function then takes the form :
Q = f (K,L)
In microeconomics, conventionally, we study two aspects of relation
between inputs and output. One aspect is : in what manner the change
takes place in output of a good, if only one of the inputs

required in producing that good is increased, i.e. other inputs kept unchanged? The
manner of change in output is summed up in the law of variable proportions which you
have already studied. The second aspect is : in what manner the output of a good
changes, if all the inputs required in producing that good are increased simultaneously
and in the same proportion. This aspect is technically termed as returns to scale, and is
the subject matter of this study. The word 'return' refers to the change in physical output.
The word 'scale' refers to the scale of operation expressed in terms of quantum of inputs
employed.

Meaning
Returns to scale means the manner of change in physical output caused by the increase
in all the inputs required simultaneously and in the same proportion. Elaborating,
suppose one unit of capital and one unit of labour (1K + 1L), produce 100 units of output.
Further suppose that both the 14 inputs are doubled, i.e. 2K + 2L. The point of interest is :
will output increase by just 100%; by more than 100%, or by less than 100%. There is no
unique answer. All the three states are possible. The three states are respectively called
Constant Returns to Scale (CRS), Increasing Returns to Scale (IRS) and Decreasing
Returns to Scale (DRS). Let us first illustrate the three states and then explain reasons.

Constant Returns to Scale (CRS)

Suppose 1K+1L produce 100 units of output, and 2K+2L produce 200 units of output. It
is 100 percent increase in inputs leading to just 100 percent increase in output. This
manner of change in output is called CRS.

Increasing Returns to Scale (IRS)

Suppose 1K+1L produce 100 units of output and 2K+2L produce 250 units of output. It
is 100 percent increase in inputs in leading to 125 percent increase in output. This
manner of change in output is called IRS.

Decreasing Returns to Scale (DRS)

Suppose 1K+1L produce 100 units of output, and 2K+2L produce 180 units of output. It
is
100 percent increase in inputs leading to only 80% increase in output. This manner of
change in output is called DRS.
Which of the above states actually results depends to a great extent on the type of
technology used. There are technologies which result in IRS from the beginning and
continue unto a large output level. Similarly, there are technologies leading to CRS
almost throughout. There can also be technologies leading to DRS from the very
beginning.
Besides, it is also possible that a technology is such that it gives IRS in the beginning,
followed by CRS and then DRS. For example:

Questions
1)
2)
3)
4)

explain the concept of a production.

what is total production of an input?
what is the marginal production of an input?
explain the relationship between the marginal product and the
total product of an input?
what is the law of diminishing marginal product?
what is the law of variable proportions?
the following table gives the total product schedule of labour. Find
the corresponding average product and marginal product
schedules of labour.

5)
6)
7)

TPL

15

35

50

40

48

8) What is meant by increasing return to a factor? What

leads to increasing return to a factor
9) What is ment by returns to a factor? Explain.
10) Explain the law of variable proportions in terms of the
behavior of total physical product with the help of the
diagram.
11) Explain the relationship between AP and MP using a
suitable diagram.
12) What is meant by diminishing return to a factor?
Explain causes.

Thank you