Chapter- 04: Production TheoryProduction Theory:
Production function :
A production function represents input – output relationship.Q = f (X, Y, Z)Where, Q = output (or production volume)X = Labour Y = Landcalled input factors or factors of productionZ = CapitalQ = Dependent variablesXYZ = Independent variables
B)The Law of Diminishing Returns:
The Law of Diminishing Returns states that the additional or marginal product of avariable input factor X (say labour) successively decreases as we go on increasing thatinput factor at a particular point of time, other input factors Y (say land) and Z (saycapital) remaining fixed.
Example: Land = 1 Acre, Capital Tk. 10,000/- , Labour change as under-Labour (X)MPxTPxAPx
115151521732163185016.664156516.255127715.406784147084128-9759.38Where, MPx = Marginal product of input factor xTPx = Total product of input factor xAPx = Average product of input factor xMathematically, MPx = Δ TPx/ ΔX TPx = ∑ MPxi (i = 1 + n)MPx is the additional product produced by one additional unit of input factor X.TPx is the sum of all MPx.