# Production Function

by

Balaji K

Overview 
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What is a Production Function Importance & Uses of Production Function Linear Homogeneous Production Function Cobb Douglas Production Function Isoquants and its assumptions Marginal rate of substitution Laws of Production

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Production Function 
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Input process output Q=fn(a,b,c and d) Q=Quantity /output and a,b,c and d are inputs

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Importance of Production Function
Helps to estimate the level of Production. L  It becomes Isoquants  It helps in the input substitution process without altering the total output  Price determination and choosing the least combination of inputs 

D

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Uses of Production Function
How to obtain Maximum output L  Helps the producers to determine whether employing variable inputs /costs are profitable  Highly useful in longrun decisions  Least cost combination of inputs and to produce an output 

D

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Table showing Production Function
Input of Labour
I n p u t o f c a p i t a l

1 6 5 4 3 2 1 688 276 226 278 556 342

2 892 898 334 688 1345 876

3 1188

4 1764 556 688 225 444 334

5 1530 1390 1435 667 1123 234

6 1668 1188 1345 556 456 688

L

D

234 556 335 688 765

Output Q per unit of time
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Assumptions 
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The production function is related to particular period of time There is no change in technology The producer is using the best technique Production can be fitted to both short run and the long run

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Isoquants 

The term isoquants is derived from the words µiso¶ and µquant¶.Iso means and quant means quantity

In other words Isoquants are the curves which represent the different combinations of inputs producing a particular quantity of output.

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Assumptions of Isoquants 
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There are only two factors of Production Viz Labour and Capital Two factors can substitute each other upto a certain limit.

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Properties of Isoquants 
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Always slope downwards from left to right Apply MRTS Perfect Subsitutes Do not intersect each other Higher isoquants represents higher outputs

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Isoquants with an Illustration

Combinations A B C D

Labour(Units) 1 2 3 4

Capital(Units) Output(quintals) 10 7 4 2 50 50 50 50

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Graphical representation of Isoquants

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Producers Equilibrium
The producer is in equlibrium when he secures maximum output with the least cost combination of factors of production.

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Computation of least cost combination of two inputs
X1 10 20 30 40 50 X2 45 28 16 12 8 3X1 30 60 90 120 150 4X2 180 112 64 48 32 Cost (Rs) 210 172 154 168 182

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Complements (-) vs Substitutes (+) defined by sign of cross price elasticity
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