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