economics workshop at k v 9 brd pune 5 th & 6 th october 2015 course director- mrs deepika n...

ECONOMICS WORKSHOP AT K V 9 BRD PUNE

5th & 6th OCTOBER 2015

COURSE DIRECTOR- MRS DEEPIKA N KARNANIPRINCIPAL K V OJHAR

RESOURCE PERSON- Ms. SHALINI JHAPGT (Economics) K V 9 BRD PUNE

PRODUCTON

FUNCTON AND

RETURNS TO A

FACTOR

PREPARED BY:I.P.S. Yadav

k. v. no. 1, jhansi cantt.Agra region

group 1

PRODUCTION FUNCTION

Production function is the functional

relationship between physical

inputs and physical outputs of a commodity.

Mathematical representation of

the relationship: Q = f (K, L, La)

Output (Q) is dependent upon the

amount of capital (K), Land (L) and Labour (La) used

FIXED AND VARIABLE FACTOR

Fixed factor:-

Fixed factor are those the application of which does not change with change in output.

TOTAL PRODUCT

• It is the sum total of output produced by all the units of a variable factor used in the process of production along with some amount of the fixed factors.

Example :-

If 6 units of Labour is combined with some fixed

amount of Capital and if their contribution to output is 5,6,7,10,20 units, then

TP = 5+6+7+10+20=48

MARGINAL PRODUCT

• It is the additional output due to the use of an additional unit of the variable factor, other factors remaining constant.

MP of 10th unit of L= TP of 10 units of L – TP of 9

AVERAGE PRODUCT

• It is the output per unit of the variable factor used in the process of production.Example:-40x = f(5L,4K)AP =TP = 40 = 8

L 8

LAW OF VARIABLE PROPORTION

• Law of variable proportion states that as more and more of the variable factor is combined with the fixed factor , a stage must ultimately come when marginal product of the variable factor starts declining.

EXPLANATION OF THE LAWUnits of land Units of

labourTotal product Marginal

product

1 1 2 2

1 2 5 3

1 3 9 4

1 4 12 3

1 5 14 2

1 6 15 1

1 7 15 0

1 8 14 -1

Increasing MP implies increasing returns to a factor

Diminishing MP implies diminishing returns to a factor

Negative MP implies negative returns to a factor

TOTA

L PR

OD

UCT

MAR

GIN

AL P

ROD

UCT

K

E

T

L

SL

S

Stage: I Stage :II Stage: III

Increasing Returns

Diminishing Returns

Negative Returns

MP Curve

TP Curve

Units of the variable factor

CAUSES OF INCREASING RETURNS TO A FACTOR

Fuller utilisation of the Fixed Factor

Increased Efficiency of the Variable Factor

Better Co-ordination between the Factors

CAUSES OF DIMINISHING RETURNS TO A FACTOR

Fixity of the Factor Imperfect Factor Substitutability

Poor Co-ordination between the Factors

ASSUMPTIONS OF THE LAW

Ratio in which factors of production are combined can be changed

Units of the variable factor are homogeneous or equally efficient, and are increased one by one.

POSTPONEMENT OF THE LAW

The law of variable proportions may become inoperative for the time being due to improvement in the technique of production.

Also, the applicability of the law can be postpone when some substitute of the fixed factor is discovered.