Production Function

The production function relates the maximum amount of

output that can be obtained from a given number of
inputs.
The production function also gives information about
increasing or decreasing returns to scale and the marginal
products of labor and capital.

Total Product
Total product is the overall quantity of output that a firm
produces, usually specified in relation to a variable input.
Total product is the starting point for the analysis of short-
run production. It indicates how much output a firm can
produce according to the law of diminishing marginal
returns.

Average Product
Average product is the number of units produced from a
single unit of production.
Average product equals the units of output produced per
unit of a factor of production while keeping other factors
of production constant.
Average product= Total output in units/ Units of factor of
production.
Marginal Product
The marginal product of an input is the extra output
produced by 1 additional unit of that input while other
inputs are held constant.
The marginal product is the output produced by one more
unit of a given input.

The law of diminishing marginal returns

The law of diminishing marginal returns states that, at
some point, adding an additional factor of production
results in smaller increases in output.
The law of diminishing returns, also referred to as the law
of diminishing marginal returns states that, in a production
process, as one input variable is increased, there will be a
point at which the marginal per unit output will start to
decrease, holding all other factors constant.

Constant Returns To Scale

Constant returns to scale denote a case where a change in
all inputs leads to a proportional change in output.
 For example, if labor, land, capital, and other inputs
are doubled, then under constant returns to scale
output would also double.
  Many handicraft industries (such as hair cutting in
America or handloom operation in a developing
country) show constant returns.

Increasing Returns To Scale

Increasing returns to scale (also called economies of scale)
arise when an increase in all inputs leads to a more-than-
proportional increase in the level of output.
 For example, a engineer planning a small-scale
chemical plant will generally find that increasing the
inputs of labor, capital, and materials by 10 percent
will increase the total output by more than 10
percent.

Decreasing Returns To Scale

Decreasing returns to scale occur when a balanced
increase of all inputs leads to a less-than-proportional
increase in total output.
 In many processes, scaling up may eventually reach a
point beyond which inefficiencies set in. these might
arise because the cost of management or control
become large.
Short Run
Short run is that period of time in which a producer cannot
increase the supply of all factors.
In short run, atleast one factor is fixed.
A Producer has certain commitments in the short run.
In the short run, firms are only able to influence prices
through adjustments made to production levels.

Long Run
The long run is a period of time in which all factors of
production and costs are variable.
In the long run, firms are able to adjust all costs.
Producer can make major decisions; investments can be
made in the long run.

Productivity
Productivity describes various measures of the efficiency
of production.
A Productivity measure is expressed as the ratio of output
to inputs used in a production process, output per unit of
input.
Productivity typically calculated for the economy as a
whole, as a ratio of Gross Domestic Product (GDP) to hours
worked.
Partnership
A Partnership is a form of business where two or more
people share ownership, as well as the responsibility for
managing the company and the income or losses the
business generates.
A Partnership is a formal arrangement in which two or
more parties cooperate to manage and operate to
manage.
There are three types of partnership:
 General Partnership.
 Limited Partnership.
 Joint Venture.

Corporation
A Corporation is a business entity that is owned by its
shareholder, who elect a board of directors to oversee the
organization’s activities.
The corporation is liable for the actions and finances of the
business- the shareholders are not.
Corporations can be for-profit, as businesses are, or not-
for-profit, as charitable organizations typically are.