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Understanding Production Functions in Economics

Production function is the max output that can be produced by combining inputs, given the level of technology. The inputs used in the production process is known as factors of production. Production function can be represented as Q= f (x1, x2) Q= max output.

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12 views8 pages

Understanding Production Functions in Economics

Production function is the max output that can be produced by combining inputs, given the level of technology. The inputs used in the production process is known as factors of production. Production function can be represented as Q= f (x1, x2) Q= max output.

Uploaded by

subinrajvr007
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

Production Function

Arya B Raj Asst: Professor GIMS

Production Function
It is the max output that can be produced by combining inputs, given the level of technology. The production function shows the relationship between inputs and output. The inputs used in the production process is known as factors of production.

Suppose in a production process there are only two factors of production x1 and x2. Then production function can be represented as Q= f (x1, x2)
Q= max output X1= the quantity of factor 1 X2= the quantity of factor 2

The Short Run Production Function


The short run is defined in economics as a period of time where at least one factor of production is assumed to be in fixed supply i.e. it cannot be changed. We normally assume that the quantity of capital inputs (e.g. plant and machinery) is fixed and that production can be altered by suppliers through changing the demand for variable inputs such as labour, components, raw materials and energy inputs. Often the amount of land available for production is also fixed.

The Long Run Production Function


In the long run, all factors of production are variable keeping the proportion between inputs fixed.

TP, AP, MP
Total product is the total output that is generated from the factors of production employed by a business. Average product is the total output divided by the number of units of the variable factor of production employed. AP= TP/ X where, TP= Total Product, X= amt of variable inputs.

MP
Marginal product is the change in total product when an additional unit of the variable factor of production is employed. For example marginal product would measure the change in output that comes from increasing the employment of labor by one person, or by adding one more machine to the production process in the short run.

No of variable inputs 0 1

Total product 0 15

Average product 0 15/1= 15

Marginal product 15-0= 15

2
3 4 5

35
50 48 30

17.5
16.6 12 6

35-15= 20
50-35= 15 48-50= -2 30-48= -18

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