TO TA L PR OD UC TI ON

TP

AP

QUANTITY OF VARIABLE INPUT

MP

VARIOUS STAGES
1-THE AV.PRODUCT IS INCREASING AND MARGINAL PRODUCT IS GREATER THAN THE AV.PRODUCT 2THE AV.PRODUCT AND MARGINAL PRODUCT BOTH DIMINISHING BUT MARGINAL PRODUCT IS POSITIVE 3 TOTAL PRODUCT IS DIMINISHING AND MARGINAL PRODUCT IS NEGATIVE

IMPLICATIONS
In stage one MPandAPboth are increasing and MP is more than AP-.This can have two implications 1a given increase in the variable factors lead to more than proportionate increase in the output 2the entrepreneur is not making the best possible use of the fixed factor

Implications-stage 2
MP AND AP are both falling and MP although positive is less than AP.at this stage there is less than proportionate change in the output due to change in the variable factors. There fore at this stage the entrepreneur will employ the variable factor in such a way that the utilization of the fixed factor is more efficient

LONG RUN AND SHORT RUN

THE TIME PERIOD IN WHICH ALL THE FACTORS FIXED-AND VARIABLE CAN BE ADJUSTED IS CALLED THE LONG RUN.

Technological change
Total product

input

TECHNOLOGICAL CHANGE
Ex with the technological developments in the aviation industry larger jet planes have increased the number of passanger miles per unit of input. With the development ofg the optical fibre , the cost of telephony has come down. There are many such technological innovations which have improved productivity and reduced costs there are other technological changes which reduced wastage in production process and increase output.

Types of technological changes

Process innovation Product innovation

Returns to scale
nits of labour
1 2 3 4 5 6 7 8 9

Units of capital
100 200 300 400 500 600 700 800 900

%increaUse Total in capital product and labour

100 50 33.33 25 20 16.66 14.29 12.5 100 220 350 500 625 750 860 940 1000

%increase Returns to in total scale product

0 120 59 42.9 25 20 14.66 9.3 6.4 Increasing Increasing Increasing Increasing Constant Constant
Decreasing Decreasing

decreasing