Theroy of Production.pptx

Theory of Production
BHARAT POUDEL
Author and co –author of several text books, from
+2 level to Master’s level
Production
• Production is the process of transforming
inputs into output.
• The term ‘production’ means a process by
which tangible and intangible inputs or factors
of production (land, labour, capital, etc) are
converted or transformed to useful tangible
and intangible output.
Production Function
 The technical relationship between inputs and
output is called production function.
• Mathematically a production function can be
stated as,
Q = f(K, L, N, T, t , B …) … … … (i)
Where
Q = Output, K = Capital
L = Labor, N = Land
T = Technology, B= Building
t = time
Short-run Production Function
 Short-run production function refers to the
relationship between output and the variables
factors of production only like labor, raw
materials etc., which can be instantly changed.
• In short-run, labour is supposed to be variable
factor. The firm can change its output by
changing units of variable factor keeping other
factor constant. It can be written as
Qx = f(K ,L)
Long-run Production Function
 The input-output relationship when the
quantity of all factor input is varied, is known
as long-run production function.
 The long-run production function can be
written as;
Q = f (L, K, N, T )......(ii)
Total Product
• It refers to the total amount of a commodity
produced by the combination of all inputs in a
given period of time.
• Total product is cumulative values of marginal
products. It is defined as follows.
• ⇒ TP = AP × N
Where
N = Total number of inputs employed
TP Curve
0
10
20
30
40
50
60
70
1
1 2 3 4 5 6 7 8
TP
X
Y
Unit of labor
Average Product
• An average product is the outcome of the
total product divided by the total units of
the input employed.
• It is also known as output per unit factor
input.
AP = TP/N
AP Curve
0
2
4
6
8
10
12
14
1
1 2 3 4 5 6 7 8
AP
X
Y
Unit of Labor
A
Marginal Product
• Marginal product may be defined as the change
in total product resulting from one additional
unit of the variable factor.
MP = ∆TP/∆N
MP Curve
-2
0
2
4
6
8
10
12
14
16
1 2 3 4 5 6 7 8
Y
X
MP
Unit of labor
Conti….
Thanks to all
1 de 12

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Theroy of Production.pptx

  • 1. Theory of Production BHARAT POUDEL Author and co –author of several text books, from +2 level to Master’s level
  • 2. Production • Production is the process of transforming inputs into output. • The term ‘production’ means a process by which tangible and intangible inputs or factors of production (land, labour, capital, etc) are converted or transformed to useful tangible and intangible output.
  • 3. Production Function  The technical relationship between inputs and output is called production function. • Mathematically a production function can be stated as, Q = f(K, L, N, T, t , B …) … … … (i) Where Q = Output, K = Capital L = Labor, N = Land T = Technology, B= Building t = time
  • 4. Short-run Production Function  Short-run production function refers to the relationship between output and the variables factors of production only like labor, raw materials etc., which can be instantly changed. • In short-run, labour is supposed to be variable factor. The firm can change its output by changing units of variable factor keeping other factor constant. It can be written as Qx = f(K ,L)
  • 5. Long-run Production Function  The input-output relationship when the quantity of all factor input is varied, is known as long-run production function.  The long-run production function can be written as; Q = f (L, K, N, T )......(ii)
  • 6. Total Product • It refers to the total amount of a commodity produced by the combination of all inputs in a given period of time. • Total product is cumulative values of marginal products. It is defined as follows. • ⇒ TP = AP × N Where N = Total number of inputs employed
  • 7. TP Curve 0 10 20 30 40 50 60 70 1 1 2 3 4 5 6 7 8 TP X Y Unit of labor
  • 8. Average Product • An average product is the outcome of the total product divided by the total units of the input employed. • It is also known as output per unit factor input. AP = TP/N
  • 9. AP Curve 0 2 4 6 8 10 12 14 1 1 2 3 4 5 6 7 8 AP X Y Unit of Labor A
  • 10. Marginal Product • Marginal product may be defined as the change in total product resulting from one additional unit of the variable factor. MP = ∆TP/∆N
  • 11. MP Curve -2 0 2 4 6 8 10 12 14 16 1 2 3 4 5 6 7 8 Y X MP Unit of labor