A function that defines the maximum amount of output that can be produced with a given set of inputs is called production function.
Mathematically production function is expressed by:
Q = f (K, L)
Whereas Q represents output and K and L represent capital and labor respectively.
Production Function Table
K L Q
1 0 0
50 1 50
40 2 75
32 3 120
25 4 150
20 5 200
17 6 240
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The Discrete Production Function: This involves distinct or lumpy patterns of input combination.
Continuous Production Function: Where inputs can be varied.
Short-run Vs Long-Run Decisions
Returns to Scale
The effect on output because of a proportional increase in all inputs. This is a long-rum phenomenon.
Returns to Factor
The effect on output because of variation in only one input, a short-run phenomenon of production function.
Short-Run Production Function Analysis
In the short-run it is assumed that production is only a function of labor.
Q = f (K*, L)
Measurement of Productivity
Total Product: whole output from a production system
Average Product = Q/L
Marginal Product MPL= ΔQ/ΔL
MPk = ΔQ/ΔK
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Graphs
Three points A,B,and C on Total product graph are important. Point A is the inflection point of the TP curve.The MP of L increases till this point reaches, then it declines.
At point B AP and MP are equal, and AP is maximum.
At point C the slope of the TP is zero and the curve is at maximum. Beyond C point MP is negative and TP is reduced.
The Law of Diminishing Marginal product of Labor in the short run