Production

Function

LEARNING OBJECTIVES
5.6 Returns to a Factor: Law of Variable
5.1 Introduction
Proportions
5.2 Production Function
5.7 Law of Diminishing Returns
Long Run 5.8 Relationship between TP and MP
5.3 Short Run and
5.4 Variable Factors and
Fixed Factors 5.9 Relationship between AP and MP
Product 5.10 Solved Practicals
5.5 Concept of

5.1 INTRODUCTION
needed for smooth functioning of
We are aware that both consumers and producers are
attention on the behaviour of
an economy. In the previous three chapters, we focused our
consumers. Now, we will pay attention towards the producers.
of
Aproducer makes use of various inputs (known as Factors of Production) for production
goods and services. Production is an important economic activity as it enhances the utility of
the product by changing it in the form needed by the consumers. For example, leather is of
less use in its raw form until it is transformed into somedesirable product like shoes, bags,
jackets etc. The term production, in economics, covers a much wider range of activities, than
in its everyday use.
Toan economist, production meansSany process that converts acommodity or commodities into
adifferent commodity. Production refers to transformation ofinputsinto output. For example:
Tomanufacture
services of
shoess(output), we need variousinputs like leather, nails, land, labour, capital,
entrepreneur etc.
5.1
 SPAIN

Introductory Production,Function 5.3

Chapter5
output of afirm. In
5.2
5.2 PRODUCTION
FUNCTION and

Eceoxnproems iiocng
nputsProductiom Long
Run
between
function.
function is an 1to a
refers
period iin whichoutyutcan bechanged bychanging all factors of production.
rolationshjp a good. r m [Link] is long enough for the firmito adjust all its
some production tinputsand, output of Long inputs according to change
isa firm can change its factory size, switchto newtechniques of
as yhysical
Ihereexistsisknownbetveen Long [Link] the longrun,
run
relationshijp ,..) FunctionalIrelationship; i, I in =Inputs the new machinery, etc.
technologicalrelationi f=
in ppurchase
production,
=fi, ofcommodityx; about!.Short run and Long run
Symbolically:QOutput
ImportanttPoints
{Where-o= function thehelp of two inputs, say labour distinctionbetween short run and long run does not refer to a calendar period and is
Production chairs with ff(L, K) . Thebased on afixed time span.
Exampleof
manufacturing written as: OChairs
be t
firmis functioncan (0id, whichcan be producedA not
perioddis rathera
functionalIconcept, which depends on productionconditions. It variesfrom firm
Supposeaproduction
maximum chairsexpressed ag-
250 =(7L, 2K). It with the goen " The industryitoindustry. For example, a period of 10 years
may beshort run period for
(K).Then,
Production
functiondyfnes
If
the tunctionis
production
imnts. capital can produce
maximum ofF250 chairs.
means,7 a
steel
and
tofirmindustry, while, aperiod of one year may be along run period for a wheat producer.
andlabour unitsof
and2 Difference between
Short Run and Long Run
thee maximum outputthat
Function
labour can be Short run Long run
about
Production
specifieseither inputsneeded| to produce a
function quantityof produced
given Basis
Short run refers to aperiod in which Long run refers to a period in which

,whiclhevelototet
More production
The minimum relation between inputs and output. Meaning output can be changed by changing only output can be changed by changing all
1. orthe establishes a
giveninputsfunction is variable factors. factors of production.
Production do not consider the value i and o Factors are classified as variable and fixed Allfactors are variable in the long run.
2
innature.
Productionfunctionis not
economicalin
nature as we

defined with
respect to a given ofinputs
technology.
Classification factor in the short run.
In the short run, demand is more active In the long run, both demand and supply
improvement isalways of production, then increased output can beobotaineta
inthetechnique
function Pricedetermination
Production in price determination as supply cannot play equal role in price determination as
3. be increased immediately with inrease both can be increased.
physicalinputs. technically effficient methods in demand.
thesame
production function includes onlythe methods.
inefficient
sof product
4 The entrepreneurwill use
FACTORS
norational
Functionis expressed
with referenceeto aparticular period of It ha time. EA VARIABLE FACTORS AND FIXED
Production
5. periods. Production is the result of combined efforts of the factors of production. These factors are
with differenttime Fixed Factors.
RUN broadly classified as: (1) Variable Factors; (iü)
RUNANDLONG
5.3 SHORT output dueeto change in inputs is Variable actors
relationship between changein studied i
Thefunctional run time periods. Wariable Factors refer to those factors, which can be changed in the short run. For example,
Long
phases: Shortrun and
raw material,casual labour, power, fuel, etc.
Short Run
can be changed by changing owl.. Variable factors vary directly with the level of output. As output increases, requirement for
Short run refers to a period in which output plant, machinery, building, etc. cannot be Uariable factors also rises and vice-versa. It must be noted that variable factors are not required in
factors. In the short run, fixed inputs like till
It means, production 1can
be raised by increasing variable factors, but |the extent of capat case of zero output.
of fixed factors. Fixed Factors
For example, if aproducer wants to increase output in the short run, then this objectivea Fixed factors refer to those factors, which cannot be changed in the short run. For example,
achieved by using more of raw materials and increasing number of workers with the eit
plant and machinery, building, land, etc.
factory buiding, pant and equipment. One cannot immediately expand factory buildig he
additional plant and equipment. So, in the short run, some factors are fixed and some are vuit The quantity of fixed factors remain same in the short run irrespective of level of output, ie.
and fixed factors cannot be changed during such ashort span of time. they do not change, whether the level of output rises, falls or becomes zero.
 5.4 ProductionFunction

Differenceetween Variable Factors and Fixed Factors

Introductory MicroecgnG 5
Chapter
A

55COONCEPTOFPRODUCT
5.5

Basis Variable factors the volume of goods produced by a fim or an

Fixed factors Prodnct
or outyutrefers to
Meaning Variable factors refer to those factors, Fixed factors
refer to those period time.
or industry during a
which can be changed in the short run. cannot be syeejfed fproductcan be looked at from three differenttangles:
Relation with output They vary directly with output.
changediin the
They do not vary directly short efactors wi
with run.
of
concept
The
Product(TP)
(MP)
Example Raw material, casual labour, power, fuel, Building, plant and output. a
Total Product
Marginal (AP)
etc.

Example-Fixed and VariableFactors in Short and Long run

staff, etc.
imachinery,permane i)AverageProduct
i)
Total
Product
(TP)
refersto total quantity
product number inputs.
of goods produced
by afirm during agiven period of
Example: Suppose, Shyam manufactures pens with the help of a machine (fixed factor). of
capacity of the plant is 2,000 pens. The variable factors needed to produce 2,000 pens are:
Thhe Total given

labourpensmaxXsimum
10 zwith produce 60 kg of:rice, then total product is 60 kg.
if10labours
t i nae
100 kg of raw material. However, due to lowv demand the market, Shyam is manufacturing onlyy
in
600 andwith
example, expand TP by increasing only the variable factors. However, in the
4 labours and 30 kq of raw material. For shortrun, a firm can both fixed and
by increasing variable factors.
Short Run: Suppose further, Shyam gets an additional order of 900 pens. Now, to fulfil this order, he Inthe TPcan be raised
increase only the variable factors (i.e. labour and raw material) as total production 600 +900 = needsto
run,
long
also known as
Total Physical Product (TPPYor Total Return' or Total Output:
1,500
still within the maximum capacity of plant. The period, needed ito complete the order of 900 pens is pens is Total
Productis
as short run. The period ofshort run is too short to cause any change in the fixed factors. The termed
can be increased only to the extent of available capacity of fixed factors. production AverageProduct(AP)
per unit of variable input.
Long Run: Howeve, if the order size is of 1,800 pens (instead of 900 pens), then total production nenda 1refers to output
product
will increase to 2,400 pens. But, the maximum capacity of plant is 2,000 pens. Now, Shyam needs to have ns
Average product(TP)) is 60 kg of rice, produced by 10 labours (variable input), then
example,iftotal
more plant in addition to more labour and raw material. The period, needed to complete the order of 180m For product will be 60
+ =6 kg
10
variable factor.
pens is termed as long run. In the long run, distinction between fixed and variable factors disappears and average
obtainedlby dividing TP by units of
all factors (plant, labour and raw material) are variable. APis Total Product (TP)
Average Product (AP) = Units of Variable Factor (n)
Types of Production Function
be:
The distinction between fixed and variable factors helps us to study the two types of production of APwill TP = APx Units of Variable
Factor
TPinterms
function:
(APP)' or 'Average Return!
known as Average Physical Product
1. Short Run Prodution Function (Variable Proportion Type): Short run production Average Product is also
function refers to asituation when output is increased by changing only one input whle
keeping other inputs unchanged. As there is change in variable inp1ut only, the ratio between MarginalProduct(MP) unit of variable factor
addition to total product, when one more fixed.
different inputs tends to change at different levels of output. This relationship is explained by to all other inputs
Marginal Product refers unit of input holding
per extra
'Law of Variable Proportions' (discussed in Section 5.6). measures extrà output
is employed. It MP, = TP, -TP,n-1
2. Long Run Production Function (Constant Proportion Type): Long run production
function refers to a situation when output is increased by increasing all the inputs
variable factor;
product of nth unit of
Where,
simultaneously and in the same proportion. As all inputs are variable in the long run, the ratio Marginal
between different inputs tends to remain the same at different levels of output. This relationship MP, = variable factor;
Total product of n units of
isexplained by theLaw of Returns to Scale' (discussed in Power Booster Section). TP, = of variablefactor;
Before we proceed to Law of Variable Proportions, let us first discuss the various concepts Total product of (n-1) units
TP-1= units of variable
factor.
of 'Product'. = number of
 ProductionFunction

5.6
and 11labours
Introductory Microecon
make 67
5
Chapter
A

risesat.
t increasingrate.
5.7

Jabours make 60 kg of rice kg of TPincreases.

MP
For example, If 10 ice, then M. Pase
decreasing rate.
1th labour will be: rises att
TP decreases and is positive.
MP,, =TP,,-TPo Phase
II:
MP
MP, =67-60 =7kg Phase
lll:TPfalls
Marginal Product(MP) is alsoknown as'Marginal Physical Product (MPP)''or'Marginal Return: MPbecomesnegative.

rof
Law Variable Proportions
Calculate MP of
One More way to
Assumptions
as factors are classified as variable and fixed factor:
inshort run,
in TP when one more unit of variable factor isemployed. operates
We know, MP is the change all fixed factors including land;
is greater than one unit, then MP, can It appliesto
when change in variable

MP
factor
Change in Total Product
Change in units of Variable Factor
ATP
An
be
calculated Howev r, 1. Thelaw
2

3
Under
fixed
Lawof Variable
factor;
Proportions,,different units of variable factor can be
combined with
tothe
applies field of production only;
Suppose22labours produce 60 units and5 labours produce 90 units. then MP will be: Thislaw changein output due to change in variable factor can be easily determined;
effect of
TP of 5labours - TP of 2labours The
assumedthat, factors of
production becomeimperfect substitutes of each other
MP =
5 labours -2 labours
5 beyond
aItis
certainlimit:
90- 60 30 assumed to be constant during the operation of
MP =. 10 units technology is this law;
5-2 3 stateof
The all variable factors are equally efficient.
TP is summation of MP
7.
Itis,
assumed that
Total Product can also be calculated as the sum of marginal product.
&.
understandthelaw with the help of an Example
nOw
It means, TP,= MP, + MP, +MP, + . . MP
Letus farmer has 1 acre of land (fixed factor) on which he wants toincrease the production
Suppose,a of labour (variable factor). When he employed more and more units
or, TP = MP with the help of
wheat
of initially output- increased at an increasing rate, then at a decreasing rate and finally, at
5.6 RETURNS TOA FACTOR: LAW OF VARIABLE PROPORTIONS labour, This behaviour of output is shown in Table 5.1
Returns to a factor refers to the resultant increase in the total product negative rate.
a TabBe 5.1: Law of Variable Proportions
increased, keeping all other factors fixed. In the short run, (return) when only one factor ie
inputs are fixed, the firm's production function exhibitswhen one input is variable and all other
the Law of Variable FixedFactor
Variable Factor TP
(units)
MP Phase
(units)
Proportions or LVP is one of the most important laws ofProportions. It
" Law of Variable Landinacres) (Labour)
10 10 Phase l: Increasing Returns to a Factor
shows the nature of rate of change in production.
output due to a change in only one variable 1
1
30 20
of production. 2
factor 1
" Law of Variable 3 45 15 Phase l: Diminishing Returns to a
Proportions is also
or 'Returns to Variable known as 'Law of Returns´ or Law of 1
52 7 Factor
Factor'. Returns to Factor' 1 t
4

5 52
Statement of Law of Variable Proportions 1 n
6 48 -4 Phase ll: Negative Returns to a Factor
Law of Variable 1
Proportions (LVP) states that as we increase
keeping other inputs fixed, total product (TP) quantity of only one input conditions of
finally at a negative [Link] increases at an increasing rate, then at Factor ratio keeps on changing: It must be noted that production is carried out under
a decreasing rate and
According to the Law of Variable Proportions, i.e. proportion between fixed and variable factor changes with every additional
following three Phases: Variable Proportions, the changes in TP and MP can be classified into Variable factor. In Table 5.1, the ratio between land and labour changes from 1:1 to 1:2, then to 1:3 and
sO on, with addition of more and more units of labour.
 ProductionFunction
5.8
Introductory N
icroecoNomics 5
Chapter
A

DiminishingReturnsto aFactor (TP

5.9
Y
Law of Variable
everyadditional variable factor
increases at diminishing rate): In the
PhaI
sel:
adds lesser and second
units) Proportions .
Phasel (Between O to O) TP
phase, increases
diminishing rate and MP returnswithlesser
at a
Thatiswhy,this phase is [Link] diminishing falls
means, TP
amount of output. It
toincrease
[Link] variable
60 M (TP is Maximum) increases at an factor.
(in and MP also increasing rate " Ithappensbecause after a level of output, pressure on fixed input leads to fall
Product
50 Point
TP increases.
. Phase Il
40
of Inflexion (Between Qto M) TP productivity of the variableinput.
Total30
increases at decreasing rate
and MP falls. This . in
The second phase ends at point S, when MP is zero and TP is maximum (point
when MP becomesphase ends units.
20 TP reaches its zero and 'M)at52
. 2nd phase is very crucial as a rational producer will always aim to produce in
10 . Phase II(Beyond
maximum point.
point M) TP this phasebecause TP is maximum and MP of each variable factor is positive.
’X starts decreasing and MP not
ol i 2 3 4 5 6 only fals, but also becomes to a Factor: In the third phase (starting from 6units of
units) Units of Variable
negative. Negative Returns labour),
factor
. Point of Phase
IlIl:
employmentof, additional variable factor causes TP to decline. MP now becomes
(in Phase Phase ll Phase lIl Inflexion (Point o) the Therefore,this phase is known as negative returns to afactor.
Product
60 Point Q' is known as point of negative.
inflexion as curvature of TP
" It
happens because amount of variable input becomes too large in comparison
50 curve changes at this point. input which leads to decline in TP.
Marginal tothe fixed
40
5.1, third phase: starts after point 'S on MP curve &point'Mon TP curve.
thet
30
MP is
" In Fig variable factor negative in the 3rd phase. So, no firm would
Maximum MP of each
20 P
deliberately choose to operate in this phase.
10
,S (MP = 0) PhaseofOperation
1 2 3 4 5
X
producer will always seek to operate in Phase II of Law of Variable Proportions.
MP rational employment of every additional unit of variable factor gives more and more
Units of Variable factor A
In Phase Lmarginal producttincreases.
i It means, there is scope for more profits, if production
Fig. 5.1 outputie.
with more units of variable factor.
increased
So, this phase is ruled
As seen in Table 5.1 and Fig, 5.1, when farmer increases the labour on the is
marginal product of each variable factor is negative.
same piece of land. In Phase II, arational producer will never produce in
then, initially TP rises at an increasing rate, then at a decreasing rate and finally it falls. The ground of technical inefficiency and
out onthe
resulting relation between input and output is discussed in three phases: the third phase. is maximum
totheeconclusion that
a producer willaim to operate in PhaseII, as TP
Phase I: Increasing Returns to a Factor (TP increases at an increasing rate): In the first phase, This bringss us factor is positive.
every additional variable factor adds more and more to the total output. It means, and MP of each variable
Variable Proportions
TP increases at an increasing rate and MP of each variable factor rises. Reasons for Law of for Law of Variable Proportions are:
reasons r3 phasess of
" It happens because initially quantity of variable input is too small as compared The various
I)
to the fixed input. As production starts, there is efficient use of the fixed input, Returns to a Factor (Phase
Reasons for Increasing operation of increasing returns to a
factor:
which raises the productivity of variable input due to division of labour. reasons for the the fixed factor
There are three important Fixed Factor: In the first
phase, the supply of
" As seen in given schedule and diagram, one labour produces 10 units, while two Utilisation of the So, the fixed factor is not fully
1. Better
large, whereas variable factors are too few. with ixed factor, then fixed
labours produce 30 units. It implies, TP increases at increasing rate (till point (say, land) is too combined
factors are increased and
' ) and MP rises till it reaches its maximum point 'P, which marks the end of utilised. When variable increases at an increasing rate.
and output increased and combined
first phase. factor is better utilised When variable factors are
Variable Factor: same time,
Efficiency of efficient manner. At the
2. Increased
factor, then former is utilised in a more between different units of
with the fixed of specialization
cooperation and high degree
#Point of Inflexion: It is a point from where slope of TP changes or curvature of TP
changes. Till this point, TP increases at an increasing
rate and from this point onwards TP increases, but at a diminishing rate. This point marks the beginning
of Phase Il of Law of Variable there is greater to division of labour.
Proportions. In Fig. 5.1, Qis the Point of Inflexion. the variable factor due
 ProductionFFunction
5.10

factors
Introductory MicroecoNomi 5
Chapter
>

this with Table 5.2 and Fig 5.2.

5.11

3. Indivisibility of Fixed Factor: Generally, the fixed divided

understand

variable factors are indivisible. Such factors cannot be

which are combined
into Letus Table5.2:
Law Diminishing Returns
investment is made in an indivisible fixed factor, then addition smaller Variablefactor TP MP

of variable factor, improves the utilisation of fixed

long as optimum level of combination between variable
factor.
The
and
of more and
[Link]
increasifactorng isretumsmosre urits
ixed
Fked
lactor
Aand

fn
acres)
(labour) (in units) (in units) Y

Product
Marginal
Law of Diminishing
Returns

Reasons for Diminishing Returns to a Factor (Phase Il) ach ieved.

The main reasons for occurrence of diminishing or decreasing returns to afactor 2
1 12

22
12

10

1. Optimum Combination of Factors: Among thee different combinations 30

1
3
and fixed factor, there is one optimum combination, at which total
maximum. After making the optimum use of fixed factor,,the
factor begins to diminish. For example, if a machinery (fixed factor) is attits
betwe nvarvaiarbialbele
marginal product
return of v
1

5
36

40 4
ol 1 2 3 4 5
MP

when 4labours are employed, then addition of one more labour will
less amount and MP will start diminishing. increase TP by optimum [Link] in
seen
Table 5.2 and Fig. 5.2,
variable factor
MP falls when more and
(labour) areemployed with the
Units of Variable factor
Fig. 5.2
As of
2. Over-utilisation of Fixed Factor: As we keep on increasing the variablee
units

factor, eventualy a factor(land).

More Thislaw considers only the falling phases
position comes when the fixed factor has itslimits and starts yielding diminishing fxed ignoresthe phase ofiincreasing
MP.
retums,
3. Imperfect Substitutes: Diminishing returns to afactor occurs because fixed and w ofMP
and
Law of Diminishing Returnssas it also considers the phase of rising MP in addition
factors are imperfect substitutes of one another. There is a limit to the extent of whte extensionto
element between boththelaws is that MP is bound to decrease sooner or
factor of production can be substituted for another. For example, labour can be substih IVPisan common
MP The factor.
in place of capital or capital can be substituted in place of labour till aparticular limit. Bu: tofalling increasein units of variable
r with
later
bevond the optimum limit, they become imperfect substitutes of one another, which lead the output by changingthe quantity of variable factors only. However, in
afrm canchange
to diminishing returns. shortrun, become variable,[Link] distinction between fixed and variable factors disappears.
Inthe allthe factors
thelongrun, output dueto change in allfactor inputs is studied under'Law of Returns to Scale,
Reasons for Negative Returns to a Factor (Phase l) resultant changein
Section.
The main reasons for occurrence of negative returns to a factor are: The PowerBooster
discussedin the
1. Limitation of Fixed Factor: The negative returns to a factor apply because some factors of
TP AND MP
production are of fixed nature, which cannot be increased with increase in variable factor RELATIONSHIP BETWEEN
ER help of following
in the short run. between TP and MP can be better understood with the
2. Poor Coordination between Variable and Fixed Factor: When variable factor becomes The relationship
scheduleand diagram:
too excessive in relation to fixed factor, then they obstruct each other. It leads to poor TP and MP
coordination between variable and fixed factor. As a result, total output falls instead of Table 5.3: Relationship between
MP
Variable factor TP
rising and marginal product becomes negative. Fixedfactor (Land) (units)
(units)
(labour) (in units)
3. Decrease in Efficiency of Variable Factor: With continuous increase in variable factor, (in acres) 0
the advantages of specialization and division of labour start diminishing. It results 0
10
1
in inefficiencies of variable factor, which is another reason for the 10
negative returns to 1
20
eventually set in. 1 30
Law of Variable Proportions is an extension of another famous law, known asLaw of 2
15
Diminishing Returns. 1 45
3
1 7
5.7 LAW OF DIMINISHING RETURNS 52
4
Law of diminishing returns states that when more and more units of a variable 1
52
factor are 5
employed with afixed factor, then marginal product of the variable factor must fall. It means 1
48
that marginal returns diminish whern proportion between variable and fixed factors increases. 6
1
This law is also known as Law of Diminishing Marginal Product.
5.12
Introductory Microeconi
The relationship between TP and MP can be summarised as under:
1. As long as TP increases at increasing rate (till point
P'), MP also increases.
units)
60
Relationship betwe n
TP and MP
2. When TP increases at diminishing rate, MP
50
decreases. It starts happening when 3 units of
labour are employed and continues till 5 units of
variable factor.
(in
MP 40
/ 30
TP
MIPiSMaximum
TP

3. When TP reaches its maximum point (point M), 20

MP becomes zero (point N), i.e. at 5th unit of 10
variable factor. N(MP isZero)
o 1 2 3 4
56
4. When TP starts decreasing, MP becomes negative, Units of Variable factor MP
ie. from 6th unit of variable factor.
Fig. 5.3
5.9 RELATIONSHIP BETWEEN AP AND MP
The relationship between AP and MP is discussed through Table 5.4 and Fig. 5.4:
Table 5.4: Relationship between AP and MP
Fixed factor (Land) Units of Variable factor AP MP
(in acres) (labour) (units) (units)
1 0
1
10 10
1 2 15 20
1 3 15 15
1 4 13 7
1 5 10.40
1 6
4

The relationship can be summarised as under: Y Relationship between

1. As long as MP is more than AP, AP AP and MP
2nd unit of variable factor.
rises, i.e. up to
units)
25
2. When MP is equal to AP, AP is at its
at 3rd unit of variable maximum, i.e. (in
20
factor. MP
3. When MP is less than AP, AP falls 15
(from 4h nit of AP/
variable factor). 10
4. Thereafter, both AP and MP falL, but MP becomes 5 AP

negative, whereas, AP remains positive. MP falls at 1 2 3 4

a faster rate in comparison to fall in AP. 6
Units of Variable Factor MP
Fig. 5.4
It must be noted that both AP and MP are
derived from TP. AP is
whereas, MP is based on the additionalunit only. So, it is the MPcalculated on the basis of all the units.
which pulls the AP up or down.
 A Production Function 5.13
Chapter5

5.10SOLVEDPRACTICALS
tFormulae at a Glance
Important
variable factor x AP =EMP
TP=Unitsof
1. Units of variable factor;
AP=TP*
3. MP, =IP-IP-1
Practicals on TP, AP and MP
Example1. Calculate Average Product (AP) and Marginal Product (MP):
0 1 2 3 4
VariableFactors
20 28 28 25
Total Product(TP)

Solution:
VariableFactors TP AP (in units) MP (in units)
(VE) (in units) TP + VF= AP TP,-TP,-1=MP
0
1 8+1 = 8 8-0 = 8

2 20 20 + 2 = 10 20-8 = 12

3 28 28 +3 = 9.33 28- 20 = 8

4 28 28 + 4 = 7 28-28 = 0

5 25 25 +5 = 5 25 -28 = -3

Eyample 2. Calculate AP and MP from the following particulars:

Land 1 1 1 1 1 1 1 1
1 2 3 4 5 6 7
Labour
TP (units) 20 50 90 120 140 150 150 140 120

Solution:
Land Labour TP AP (in units) MP (in units)
(in units) AP= TP Labour MP
P=TP,-1P-1
1 0
1 1 20 20 20
1 2 50 25 30
1 3 90 30 40
4 120 30 30
1 5 140 28 20
1 6 150 25 10
1 7 150 21.42
1 140 17.50 - 10
120 13.33 -20

Example [Link] TP and AP:

Variable Factor 1 2
m
3 4 5 6 7
MP (in units) 24 20 16 12 8
 º ProductionFunction
5.14
Introductory tMicroecOnormics C h a p tse r

table: 5.15
Solution: Completethe following
6.
Variable Factor MP TP (in units) Erample
UnitsofLabour Average Product
(VE) (in units) TP= EMP AP (in units) (Units)
(Units) Margin(Units)
al Product
TP
1
24 24 +0 = 24 +VF =AP
2
20 24+ 20 =44
24+1 24 2
10

3
16 44 + 16 =60 44+2 22 3
10

4
12 60 + 12 =72 60+3 20 4
9

72+8 =80 72+4 =18 5

4

6 80 + 0 = 80 80+5 =16
80 +6 =13.33 6
7

7 80-8 =72
72 +7 =10.28 Solution: TP (in units)
Example 4. Find out the values of TP and Mp. Units ofLabour AP (in units) MP (in units)
TP= MP AP= TP÷ VF
Variable Factor 1 2
VariableFactor(VE) MP.= TP,-TP-1
3 4 8 8
AP (in units) 8 10 8 20
6 10 12
Solution: 30
10 10
3 36
Variable Factor AP TP (in units) 9 6
(VE) (in units) TP= APx VF MP (in units) 40 8
MP, 4
1

2 10 20
=TP.-TP, 8
n

6
42 7
2

12
3
24
Practicals on Law of Variable Proportions
4 4
6 24 Example 7. Identify the different output levels, which mark the three phases of the operation
5
of Variable Proportions, from the following table:
4 20
-4
Law
Example 5. Find out the missing values from the ofthe
following table: variablefactor
2 3 5
Variable Factor 1
Unitsof 20 28 28
3 4 20
TP (in units)
5 6 TP(in units)
25
AP (in units) Solution:
5
MP (in units) Variable Factors TP (in units) MP (in units) Phase

-4 (VF) (TP) MP, =TP,-TP-1

Solution: 1st (Increasing
0
Variable Factor TP (in units) 1
8 returns to afactor)
(VE) AP (in units) MP (in units) 20 12
TP= MP AP= TP÷ VE
MP, =TP, -TP,-1 3
28 8 2nd (Diminishing
1 28 0 returns to a factor)
5
5
13
5
5 20 -8 3rd (Negative
6.50 returns to a factor)
17
5.67
phases of Law of
Evample 8. Calculate the MP of variable factor and indicate the various
4
25
5 6.25
Variable Proportions from the following schedule:
30
6
6
30 5
5 2 3 4 5 6
7 Units of variable factor 1
26
3.71 50 110 150 180 180 150
4 TP (in units)
 ProductionFunction
5.16
Introductory N
McroeconOr Chapter
5
5.17

Solution: Total Physical

TP (in units) MP (in units)
solution:
Variable
Input Product or TPP Marginal Physical Phase
Variable Factors Product or MPP (Units)
(VE) (TP)
0
MP.
P,=TP,-TP,-1 Phase Units) (Units) MPP,= TPP-TPP
50 50 1st (0ncreasing 10 10
1t Phase (RF)
1
110 60 returnsto0 afacton 2
22
30
12

8
2nd Phase (DRF)
40
3
150
180 30
2nd (Diminishing 3
35 5

4
5
180 returns to afactor 5
30 -5 3rd Phase (NRF)

6
150 -30
3rd (Negative returns behind
each
Phase
to afactor) Reason or Increasing
returns to afactor): TP increases at an increasing rate and MP
also
of Variable Proportions from the Phase(IRE
diferent phases of the Law 1
Example 9. Identify
folowing
increases.
or Diminishing returns to a factor): TP increases at decreasing rate and MP falls.
schedule. Give reasons for your answer. znd Phase(DRF
when MP becomes zero and|TP reaches its maximum point.
Total Physical Product (Units) . phase ends
Variable Input (Units) This returnS to a factor): TP starts decreasing and MP not only falls, but also
(NRF or Negative
grdPhasenegative.
1 4
. becomes
2
13
4 15
12

Solution:
Total Physical Marginal Physical Phase
REVISIONOF KEY POINTS
Variable Input
(Units) Product or TPP Product or MPP (Units)
(Units) MPP, = TPP, -TPP. to transformation nof inputs into output.
4 1st Phase (IRF) Productionrefers for a given state of
. function refers to the functional relationship between inputs and output
Production
3 13 4 2nd Phase (DRF) "
technology.
15 2
refers:to a period in which
output can be changed by changing only variable factors.
Shortrun
12 -3 3rd Phase (NRF) in whichn output can be changed bychanging allfactors of production.
Longrun
s to a period
refers
Reason behind each Phase refer to those factors,
which can be changed in the short run.
Variablefactors
" 1 Phase (IRF or Increasing returns to a factor): TP increases at an increasing rate and MP also " factors, which cannot be changed in the short run.
factors refer to those input
situation when output is increased by changing only one
increases.
" Fixed refers to a
"2nd Phase (DRF or Diminishing returns to a factor): TP increases at decreasing rate and MP falls. Production Function
ShortRun
inputs unchanged.
This phase ends when MP becomes zero and TP reaches its maximum point. while keeping other is increased by increasing all the
inputs
" 3d Phase (NRF or Negative returns to afactor): TP starts decreasing and MP not only falls, but also refers to asituation when output
Iong Run Production Functionproportion.
becomes negative.
simultaneously and in the same firm during agiven period of time with given
Example 10. Identify the three phases of the Law of Variable Proportions from the following quantity of goods produced by a
and also give reason behind each phase. . Total Product refers to total
number ofinputs.
unit of variable input.
Units of Variable Input Total Physical Product (Units) Average Product refers to output per variable factor is employed.
" product, when one more unit of
10 refers to addition to total
2 22
"Marginal Product
inputs fixed,
MP, =TP,-TP,-1 of onlyone input keeping other
states thatas we increase quantitydecreasing rate and finally at anegative rate.
3 30
4 ofVariable Proportions
35 "Law at a
at an increasing rate then
5 30
total product initially increases