162 5.1 5.1.1 5.1.2 Time Dimension UPPLY pucer BEHAVIOUR ANP s UNIT th: PROM 4 INCTIO! CTION FU! rare INTRODUCTION TO pRODU' function of converting inputs into output, wig portant ‘in single term, this is called productig,' im ‘A producer performs very ee dtekned as transformation of PUTS |? ae .g5 that tral “ at The expression of functional n Function. ducer makes U! mmodity into another ie, ty, Production means any Pr0' relationship between pag mation of inputs into outpu output is known as Productio ce of fixed factors and variable facto To produce a commodity, @ PPO study these in next section. Classification of Factors > Fixed Factors > Variable Factors a ‘A producer combines fixed factors and variable factors to produce a commodity. Let us kro, these : (i) Fixed Factors ‘These refer to those factors whose quantity cannot be changed in the short run. > Costs of fixed factors do not vary directly with output ie,, these do not change, whethy the level of output increases, decreases or becomes Zer0- For example, building, plant and machinery, permanent staff, land. (ii) Variable Factors > These refer to those factors whose quantity can be changed in the short run. > Costs of variable factors vary directly with output ie, these increase when outpt increases, decrease when output decreases and are zero when there is no output. For example, raw material, transport, communication, casual labour etc. ‘There are three time periods to study functional relationship between, inputs and output > Very Short Period > Short Period > Long Period (i) Very Short Period or Market Period. This tit is : : l. ime period. i 49> f ®,%), It means that production cannot change as x, and Xy, (Assuming, the producer combines x, (ii) Short Period. In this time variable factor, the fixed factor : both the factors are constant (fx) and x, amount of factors) Period, producti i Bs Temaingconstane pean 28 increased only by increas i roduction function will be It means that production increases to th : e exte the fixed factor is constant (x in an rt 8 case), ¢ Pariable factor (x, in this case) chan Introductory MICROECONOMICS(ip Long Period. During. ty, ' pte 5 tity of fixed and ime quant’y d variable fact Pood, py variable fact act Producti of and variable factors je, alt ghee” POU. In other yan CaP be increased by increasing the function Is actors are y, rds, there is no distinction between fixed im the long run. Here the production Propuction FuNcTION 163 means that produetic i aunt “Hon can be inere, fixed factor. re satin the blanks for corresponding Time Period Ghange in Oty. of | Change i a 4 Fined Facto Ay. 9 7 : " Fixed Fact Variable we fee ue ie ___ Production | (i) No Possible = T ‘Yes, to the extent ; Variable factor changes | ossible Yes, to the extent both | eee the factors change | ctors. _ | aaa ‘Answers 1. Very short period or market period 2. Short period ¢* 3. Long period 52 PRODUCTION FUNCTION Pee a 52.1. Meaning a7 Production function refers to functional (mathematical) relationship between inputs and output. For various quantities of inputs used, it gives the maximum quantity of output that can be produced 9= F(X 1/%2) It means that by using x, amount of factor 1 and x, amount of factor 2, we can atmost (maximum) produce ‘q’ amount of the commodity. For example, if q= fry x2) 1240 yy =f, 6x) itsays that maximum 1240 units of commodity “M’ can be produced by using 5 units of labour and 6 units of capital. Thus, Production Function : > establishes functional or technical or mathematical relation between inputs and output. * ifies the maximum output that can be produced with the given inputs. specifies > is determined by state of technology a production function). 522 Types of Production Function Economic theorists discuss 0 types of ( Short period (ru) Learn pa one factor top he operates in short run is known as inction, The la factor” q= fle*2) ind given span of time (short term/long term f arrangements of factor inputs in production funetion : function. Change in physical output of a good when others are fixed, is known as short run production “Law of returns to a MICROECONOMICSPO UNIT: rRUUUSen ion function. Change in physical output ofa ee when i no difference between the fixed and te yuts are variable and there is : ee the factor inputs ar ware fis known along period production function. Ty vai : “ le” q = jaw which operates in long period is known as “Law of returns to scale” q = f(%,,x,) and Returns to Scale (The word ‘Returns’ refers to change}, (ii) Long period (run) product Difference between Returns to a Factor the physical output of a commodity.) returns to @ Foctor Returns to Scale turns to 0 ca - i 1. Production is increased by increasing the quantity | Production is increased by increasing the | is juantity of all factors ‘of only one factor q a 9= fy) _t ae oe asl ‘duction function as it is not | It is a long run production function as it * Hosibie to change the quantity of all factors in | possible to change the quantity of all factors in short run : oe _ the long ran_ Sa Proporti i nin which factors change is fixed 3. Proportion in which factors change is variable peace i eae inputs is measured along X axis and mathe. | matically it is not possible to show variable change in all inputs on the same axis). | br i | 4. The law that applies is The laws are | © The law of variable proportions Increasing returns to scale ™ Constant returns to scale ™ Diminishing returns to scale 5.3 CONCEPTS OF PRODUCTION (IN SHORT RUN) The production function reflects the relationship between inputs and outpitt. This relation is explained in terms of TP, AP and MP. Therefore these concepts need to be understood first. Concepts of Production : (i) Total product or total physical product (TP/TPP) (ii) Average product or Average physical product (AP/APP) (iii) Marginal product (MP) 5.3.1 Total Product or Total Physical Product (TP/TPP) oes fat a : ee output of a commodity at a particular level of a variable fact n ith fixed factors. In simple words, i i Y firm during a given period of time with the hel Dot Poe. ea P ofgiven inputs (one variable and others fixed) TP = SMP TP = APx x, (; is the quantity of variable inp* Explanation of Total Prod 7 quantity of variable inp Table 5.1 luct (TP) with the help of a schedule : Units of Variable Input (x,) | 1 7P (Units) - TP corresponds to total production of the commod i variable factor, keeping the other factor Pee gene hel 4 ors fixed ; TP /q = f(x,,z : = f(x1,%,) Introductory MICROECONOMICSal average Product/Avers, Choprer ter 5: PRODUCTION FUNCTION 165 average Product or SI Product (4P/aPp) 'S the oduct Sutput (prod Fe,.z) 2 ME quantiy onary Per unit of variable input. It is Of variable factor, Toble 5.3 54 Marginal Product (MP) It is defined as change in tot, al product keeping the other inputs/f Product or out ne F et put per unit of change in variable input, while Or Itis the change in tot bbe al product due to application of one more or one less unit of variable factor. MP, =TP, -TP,., or is ax, Mp = ATP (c, is the units of variable factor) Explanation of Marginal Product (MP) with help of a schedule : [its of Variable Input (x) | 1 2 3 4 | 5 | s 12 4 (units) a1 3 i ees ee 2{3[4ls}2]3 ae ’ i 5.2 and 5.3. This is the tendency sllowed in tables 5.1, 5. There is a particular trend fol follow in short period. For the sake of convenience, the which concepts of Productos in the law of variable proportions in Section 5.4. same tables have been taken to i ees a of these three Practical applications : IS TO A FACTOR) RTIONS (RETURN: a : LAW OF VARIABLE PROPO 1 product (MP) of a factor input iii ies with The law says that the oe rea certain level of employment it stats falling employment level, but # ter inmoductory MICROECONOMICS166 UNIT I: PRODUCER BEHAVIOUR AND SUPPLY The reason is : ‘As we hold one factor input fixed and keep increasi changes. Initially, these proportions become more an and MP rises. But after a certain level of employment, the crowded with the variable input and factor proportions the production and MP falls. ing the other, the factor proportion d more suitable for the production e production process becomes too become less and less suitable for Assumptions : (i) One factor input is variable, q = f(x,,*2) (ii) All other factors are fixed. (iii) It is a short period production function. (iv) Factor proportion is variable (v) Units of variable factor are homogeneous (equally efficient). (vi) Technique of production does not change. Box 5.1 In short run, as we increase the quantity of variable factor only, and variable factors will change. For example, Table 5.4 a. be dit) Tian Pacts) patio i 1 et | 1 2 1:2 i 3 3 | 1 4 1:4 Land being fixed factor remains constant and the labour being variable factor is changing and accordingly the proportions/ratio is also changing iv, 1:1, 1:2,1:3ete, The law of variable proportions can be explained with the help of following table and diagram Table 5.5 Units of Variable = TP. MP Factor x, ___(Units)__—_(Units) 0 9 . 1 2 2 2 3 , F : 1 Stage of Increasing Returns, MP | 4 12 3 5 4 2 : : : TI Stage of Diminishing Returns, MP falls positively and becomes zero 7 15 0 8 uu -1 : > . | II Stage of Negative Returns, MP becomes negative Introductory MICROECONOMICS,PRODUCTION FUNCTION 167 *t Chapter § Note — Point of inflexion (Point B) is the point where the curvature of TP curve changes from convex to concave. TP rises at increasing rate till point Band after this point, TP begins to rise at falling rate. Marginal Product Variable Factor Figure 5.1 Phase/Stage |. Increasing Returns to a factor When TP increases at increasing rate, MP rises, > In Table 5.5, this can be observed from Ist to 3rd units of variable factor employed. > In Fig, 5.1, this can be observed from 0 to B (IP) and 0 to C (MP). The first phase is upto point B ie., point of inflexion till TP curve is convex. Causes : (Better utilisation of fixed factor. When increased quantity of variable factor is combined with fixed factor, then fixed factor is better utilised and MP rises. , ication of variable factor, When variable factor is increased and combined os cinerea ee te variable factor is utilised in a more efficient manner as there is division of labour. ' . eae soe bre factors Besuse of beter sation of fed factor an fc (if) Better co-ordination ctor, there is better co-ordination between the fixed and variable utilisation oa es at increasing rate implying benefits of division of labour. factor. So, TP in g Returns fo a factor a Phase/Stage II. Diminisning id endsat point Di, as long as the curve is concave Th tarts after poin : son ae at diminishing rate, MP falls positively. ) When : i ind constant, MP becomes zero. eee a pe seen from 3rd to 7th units of variable factor employed. is cal > In Table 5.5, this « this can be seen. from B to D (TP) and C to E (MP). . 51, i> Introductory MICROECONOMICS168 unin: propucer BEHAVIOUR AND SUPPLY Causes : () Over-utilisation of the fixed factors. After optimum utilisation of fixed factor, if they, units of variable factor are added, the fixed factor gets over-utilised and will briny jew than proportionate returns as a pressure is now being felt on the fixed factor wig increase in employment of variable factor. (i)_Imperfect substitution of factors. More and more of one factor cannot be used in place other as factors are imperfect substitutes. Beyond a limit it is not possible to substituy factor of production. Hence MP falls. (iii) Poor coordination. Increased application of the variable factor with a fixed fact, beyond a point crosses the ideal factor ratio. If the ideal combination is disturbed, I4p will fall. cor Phase/St. Ill. Negative Returns to a factor A rational firm will always try to operap af Sieee aay (produce) in the second phase because this phase MP remains positive \e > InTable5.5, this can be seen from 7th to 9th unit. | positive addition is made to TP and 1p > In Fig. 5.1, this can be seen after point D(TP) and | becomes maximum in this phase. after point E(MP). “Why not phase I and phase III 7” Causes : Refer to Q. 5 of Hots When TP decreases, MP becomes negative (i) Fixity of Fixed factor. As quantity of fixed factor cannot change in short run, there is excessive use of fixed factors and since the fixed factor is indivisible, it cannot absorb the increasing quantity of variable factor. In other words the quantity of variable factor becomes very large in relation to the quantity of fixed factor. (ii) Overcrowding of variable factor. With further increase in quantity of variable factor, the pro duction process becomes too crowded, this reduces the efficiency of the variable factor. Defective factor ratio, With fixity of fixed factor and over crowding of variable factor, factor proportions become less and less suitable for the production and MP becomes negative Relation between TP and MP : i When MP rises, TP increases at increasing rate. 4, When MP falls positively, TP increases at diminishing rate. . When MP is zero, TP is maximum and constant. 4c When MP is negative, TP falls. 5. TP is summation of MP ie, TP=SMP 6 MP is derived from TP ie, MP, =TP, -TP, , Fee NOTE . MP curve is the slope TP curve. Bee ge coe [Detail is given in Section 5.5] separate questions may be asked % each one of the three phases. These % below nul rence. 5.4.1. Phase of Increasing Returns eed ahendis With an increase in employme: V nt of one input, other factors held constant, if MP rises or 7? increases at increasing rate, it is law of increasing returns applying to production process = foe)Chapter fer 5: PRODUCTION FUNCTION 169 ae 5S Y ] »| 1P 2 os 2 a 5 Ea! | 3 9 ° 3 | 4 | a | Lu | ; a | 5 |e? bE es 20 12345 bs oo Units of Variable Factor (x) For causes of this phase, refer ” Tefer to section 5.4. (Stage I of law o! ae tions) 4. (Stage I of law of variable P yroportions) 54.2 Phase of Diminishing Returns With an increase in em a ployment a fall in the following ways : of one input, other factors held constant, when MP begins to () TP increases at dimini: inishing rate, MI i (ii) TP becomes maximum 7 a ie ae 9=fle-¥) Maes Toble 5.7 T Units of Variable | 1P | Factor (x,) it PIMP 7 asmenesie For causes of this phase, refer ee law of variable proportions) Figure 5.3 f one input, other factors held constant, when MP becomes %,) 54.3 Phase of Negative Returns employment o} ins to fall q= f(r" With increase in negative, TP begi Table 5.8 1 | ; | | | 2 | 10 | 8 2 : | : returns fo i a ws fer to section 5-4 (stage Hl of 7 refer tos Figure 5.4 For cat f this phase, uses of this Pre ns): law of variable ProP’ sat ROECONOMICSJ UNIT lM - PRODUCER BEHAVIOUR AND SUPPLY Se eee (Common link between the two is of falling MP. Traditional view of law of diminishing returns states that in short run when more nits of wanable factor are employed with fixed factor, the MP falls, Fall in MP refers to Positive fall im MP till zero (Phase Il of law of variable proportions) and MP becoming negative (Phase II of law of variable proportions). Law of diminishing returns talks only of falling MP. The law of variable Proportions is an extension to law of Diminishing retums in the sense that initially when employment of vanable inputs is so small that fixed factor is not efficiently utilised and further employment of variable factor increases efficiency of fixed factor causing rise in MP. 2 co Aster 2 certain Ievel of employment, factor proportions become less suitable for the production and uitimately law of diminishing retums starts operating. Hence law of wariable proportions takes into account increasing returns to a factor, in addition to falling MP. 1 Calculate IP and MP from the following data. Indicate the various phases of law of variable proportions, In which phase, a rational firm will try to operate ? = | -6 First phase of law of variable proportions is up to 3 units of variable factor, second phase is up to 6 units of vanable factor and third phase is after 6 units of variable factor employed. Rational firm will always try to operate in the second phase, ic, tll 6th unit of variable factor employed 2s here TP is maximum and constant and MP is zero. (Refer to HOTS Q. No. 5 for detail) 5.5 IMPORTANT RELATIONS After studying the behaviour of output under law of variable proportions, some important relations based on law of variable proportions can be better understood with the help of following schedules and figures : 5.5.1 Relation between TP and MP Table 5.9 Voriabie Be, wun 2 4 & i} is me + RQ 1. x CeaVaueune Figure 5.5 Introductory MICROECONOMICSLet us discuss the rota : Ch ee pler 5: PROY Tey: ionshj teen tp PUCTION FUNCTION 171] ‘ creases and Mp > Referring to Wess Meteasing rate Mi > Referring to Fig. se : this Telation CaN be MP also, increases, >" this relatio, “Seen tlL3 units of y : S of variable factor employe 2. > When Tp ant stem Sit ona sone ee : increases no “" till point ACrP) and BUMP), > In Table 59, is lation «nS, MP fall Positivel " ON ca @ si ie ee > InFig. 55, this Telatio, £2 be seen from 3rd unit to 71 ‘ eh CaN be sen fe vee © 74h unit of labour employed. : ae OC(TP) and BK P) ie “s Maximum and cor a able 5.9, this Teation can ben statl MP becomes zero > InFig. 55, thie fan a © Seen at 7th unit, n be sey int (TI 4. > When TP decreases MP Peet a pin e > In Table 5.9, thi la ome eat et ave Telation can be . 5 this retort on from 7th to 9th unit of variable factor : M after point C(TP) and after Point D(MP), . 6 MP=Tp _ 1 =P, 7. MP curve is the slope of TP curve 55.2. Relation between AP and MP Table 5.10 Units of MP Ae Variable Factor (Units) _ (Units 1 2 2 2 3 25 | 3 4 3 4 3 3 5 2 28 | 6 ee las Units of Variable Factor»? 7 0 21 Re 8 eal 17 [ : - ee Figure 5.6 Let us discuss the relationship between AP and MP ; 1. > When MP is more than AP(MP> AP), AP rises. > In Table 5.10, this relation can be seen from Isto 3rd unit of variable factor employed. > In Fig. 36, this relation can be seen from 0 to A(MP) and 0 to B(AP), ig. 5.6, : is equal to AP(AP = MP), AP is at its maximum and constant . u oe 7 an be seen at 4th unit of variable factor employed > In Table 5.10, this can be s : seen at point C. > In Fig, 5.6, this relation can be seen at p. AP falls. ig Jess than AP(MP< AP), 3. > When MP is less yn can be seen from 4th unit to 9th unit of variable factor employed. jation : > InTable 5.10, this rela can be seen after point C. > In Fig. 5.6, this relation Introductory MICROECONOMICS ee i a172 UNIT IIL; PRODUCER BEHAVIOUR AND SUPPLY 4. MP can be positive, zero and negative but AP is always positive. . MP ci sitive, 5. Both MP and AP are calculated from TP. MP, =7P, -TP, 1 where x, = Quantity of variable factor. 5.5.3 Relation between 7P and AP Table 5.11 : Units of 1. AP R Variable Factor | (Units) | (Units) 7 1 2 2 10 25 =? 2 5 5 : | 3 oe | 30 = 7 4 2 30 6 $s “4 28 | ° 6 18 25 | a 7 15 24 : 8 4 17 | a 9 ia | is | 1 . ese smears aw Let us discuss the relationship between TP Units of Variable Factor and AP: Figure 5.7 1, > When TP increases at increasing rate, AP rises. » In Table 5.11, this relation can be seen till 3 units of variable factor employed. > In Fig. 57, this relation can be seen till point A(TP) and till point B(AP). 2. » When TP begins to rise at diminishing rate, AP is maximum and constant. > In Table 5.11, this relation can be seen at 4th unit, » In Fig. 57, this relation can be seen at point C(TP) and D(AP). 3. > When TP increases at diminishing rate, AP falls, » InTable 5.11, this relation can be seen from 4th to 6th units of variable factor employed. » In Fig. 5.7, this relation can be seen from point C to E(TP) and point D to F(AP). 4. > When TP is maximum and constant, AP falls, > In Table 5.11, this relation can be seen at 7th unit, > In Fig. 57, this relation can be seen at Point G(TP) and at point H (AP). 5. > When TP decreases, AP continues to fall. » In Table 5.11, this relation can be seen at 8th and 9th units. » In Fig. 5,7, this relation can be Seen after point G(TP) and after point H(AP), Introductory MICROFCONA AmeChopter ter 5: PRODUCTION FUNCTION 173 6, » TP= AP Units of variable 5 factor yy AP=——_TP Units of variable factor gaa Relation omong TP, AP and yp 7 Ro | Paces, | 3 s| os 2 4 | 3 , PR] 3s fs | | _i* | 28 | w | 1 | 25 | | 1 | 0 | aa | rr wx ia) 1 a7 | 7 Units of Variable Factor [2 | 2 [13 Figure 5.8 Let us discuss the relationship between TP, AP and MP 1. > When TP increases at increasing rate, MP and AP rise, MP > AP. > Referring to the above Table 5.12 and Fig. 5.8, this relation can be seen from Ist to 3rd units of variable factor employed. 2. » When TP just begins to rise at falling rate, MP =AP and here AP is maximum and constant. > Referring to factor employed. the above table and diagram this relation can be seen at 4th unit of variable 4.» When TP increases at decreasin’ rate, MP and AP fall, MP< AP. > Referring to Table 5.12 and Fi variable factor employed: ig. 5.8, this relation can be seen from 3rd to 6th units of 4, >» When TP is maximum and constant, MP =Oand AP falls, MP< AP. . > When TP is ‘table 5.12and Fig: 58, this relation can be seen at 7th unit of variable factor able 5. > Referring t0 employed. 5 negative and AP falls, MP< AP. ses, MP becomes "Bi ; 5. > When TP ne 5.12 and Fig. 58, this a cea efauvarn om, anls of > Referring to T@ 1 employed Introductory MICROECONOMICS:174 5.6 pPLY UNIT Ill : PRODUCER BEHAVIOUR ‘AND SU! ans TO SCALE Jated to the fixed proporti fixed proportions production function, . ‘ons. To increase the level of producti, uuts by same percentage: re. Here a firm changes its scale of production, able, Hert ye proportion. The laws under retums., THE LAWS UNDER RETU! to Scale is rel used in definite quantity of all inp ‘The concept of Returns which all the factors are one has to increase the the factors beco! d varial me vari In the long, run, all le factors in Sa changing quantity of fixed an‘ scale are : IRS, CRS, DRS 5.6.1 Increasing Returns to Scole (IRS) : | When all the inputs are increased by a given proportion ee a Las dk et increases more than proportionately. jn other words, perce! oa than percentage increase in all factor inputs. / on For example, if all factor inputs increase by 100%, output increases DY Table 5.13 : : Units of Labour | Units of Land [% in Land & Labour | | tin | 1 | 2 | : a L 2 | 4 | 100% be = L 150% Causes : This law applies because of application of economies of scale as these reduce the unit cost of production. Economies of scale are the advantages that accrue to a firm from increased scale of production. Economies of Scale It refers to benefits enjoyed by the firm on expanding it scale of production. It is of two types 1. Internal Economies or Firm Specific Economies. These b . enefits acc only which expands its scale of production. a For example, » Technical economies obtained by bringing modern and better machines and equipments » Labour economies obtained through division of labour an > Managerial economies obtained throu: departments \d specialisation igh better administration by dividing work into 2. External Economies or Industry Speci ‘ + »pecific Ec i firms inthe industry when scale of px eee economies are available to all the For example, lustry expands.le 5.13 and figure ‘Chapter § 5 0 qabl id Figure 5.9 showy that ple 5 PRODUCTION FUNCTION 175 8 factor ir APUES increase ‘se by 100%, output rises by 150%. Uereasing tars 10 Seale 1002000 . AIL actor inputs) Figure 59 562 Constant Returns to Scale (CRs) Ifall inputs are increase d by a given pro hold when output incre Biven proportion (same percentage), constant returns to scale exactly by the proportio For example, if all inputs increase by 100% and rere in aoe al oe s by 100%. Table 5.14 Wand output \creas | Units of Land | % Tin Lond & Labour | 4 100%. Causes : This law applies when economies of scale are counterbalanced with diseconomies of Output (%) scale. Refer to 5.6.3 for diseconomies of scale. Table 5.14 and figure 5.10 show that output ETT 100% increase in Altfactor inputs (%) increases by 100% due to factor inputs. Figure 5.10 Returns to Scale (DRS) 5.6.3 De i iminishing ecreasing/Dimi snall factor inputs causes proportionately lesser increase in When a given percentage dnorente eee if output increases DY 5a cue to 100% rise in all Factor inputs Teble 5.15 hoa | Ena | units of | eal eae z Luss. tee _ia wo [= : | 100%. 150 rication of diseconomies of scale. fory MICROECONOMICS Causes : app This cause O his law applies b ad176 Unit in. PRODUCER BEHAVIOUR AND SUPPLY Diseconomies of Scale Diseconomies of scale u expansion of their scale of production beyond opGmam managerial constraints. For example, > Inefficient management due to lack of coordination. > Lack of availability of skilled inefficient investment etc. inpu Table 5.15 and figure 5.11 show that as factor inputs increase by 100%, output increases only by 50%. aes Example 1 Complete the following table = Units of Labour 3 4 ‘Average Product (units) s 10 = ° Marginal Product (units) 7 7 10 = + = Solution. . |_Units of tabour AP (us) Me (Unis) > ues) 1 8 8 ce eee 2 10 n » = 10 10 3D 4 9 ‘e % 5 | : | : : 2 L 6 7 2 2 t TP = APx Units of labour MP=TP.-TP__, Example 2. The following table ot ict schedule of labour. Find average product amd "= ” : a gives total product schedule of Fi vi _ Labour Ee LTP of Labour(units}Chapter 5 olution. PRODUCTION FUNCTION 177 ' Labour (1 1 ; re eto | of 0 —- Cinitge” | MP of Labour ‘ 0 ~ (Units) 15 = - 35 ‘s Is 3 1750 : , 50, 20 4 0 - 67, 15 5 |__ | # a 10 — —_—_—_ 8 spie3 Calculate AP and MP from the following schedule: ‘ =e Total Product (TP) (Units) |. Joo fu 8 | 20 | 28 | 28 solution. a Wanibie Fart ] Total Product | Harginal Product | Average Product (TE) (ts) = (Hs al asa Cnt) 0 | 0 . a 1 | 8 8 8 2 20 2 10 3 28 8 9.33 4 28 0 7 5 io fe) ot a Formulae used : 1. MP, =TP, ~TPua For example, MP at 3rd unit / “Tp, -TP, = 28-20= units TP 2. 2 AP =~ sriable factor For example, Ap at 4th unit _ 28 27 units § “imple 4 Calculate TP and AP * into ctory MICROECONOMICS (aeHAVIOUR AND SUFT™" 178 UNIT: PRODUCER 6 ee 1p (units) AP (Units) variable Factor mi a | ; 46 23 ’ 62 20.7 : 74 18.5 : 82 16.4 ; 82 13.7 ; 74 10.6 7 Formulae used : y 1. TP=EMP : For example, TP of 2 units =24 + 22= 46 2 TP * . AP =——___—___ 4 Variable Factor For example, AP of 5th unit = S = 164. Example 5 Following table gives the marginal product schedule of labour. It is given that the total pros zero at zero level of labour employment. Calculate total and average product schedules. INcar Labour Taleo sla | 6 MP of Latour (Units) | 3 | 5 | 7 | 1 Solution, # & Labour MP (Unit > Nes [== See - (Units) TP (Units) AP (Units) ; - 0, | “ r 3 et 2 5 : 8 3 : : , 15 ; 5 5 ; = 5 6 : a 46 Formulae used ; 2 a 1. TP="Mp i 2 ap=_TP GF Labour Example 6 Following table gives lie AP sched TP is zero at zero level of labor tule of l \ ir labour. Fi imployment "Find the TP aitd MP schedules, Its give” we t [labour [AP of Labour (Units ) Ls Tas 4 | 350te Chopter nS PRODUCTION FUNCTION 179 ssanple7 Identify wind enc phase. of Variable Input | 1 UPP (Units) EE Solution. 7 a bt Eg TPP (Units) MPP/MP Units) Stages/Phases 1 10 10 7 ns to a factor I: Increasing returns to a factor as MP rises Z ere 2 | 3 | ~~ [te Bimini : | 3 | I: Diminishing retums to a factor as MP falls positively 3 5 | t 5 30 I -5 IIT: Negative returns to a factor as MP is Negative amples Identify the different output levels, which mark the Hhree phases of the operation ofthe law of variable Proportions, from the following table : 4 + Units of Variable Factor 1 | | La[s | TP (in Units) o [8 20 | 28 | 28 | 20 | Solution. 3 Variable P ‘MP(in Units) She Factors. | (in Units) | MPo = Tho Tt ° 2 = 1st : Increasing returns to a factor 1 8 | 8 as MP rises * 12. 2 20 ‘Qnd : Diminishing returns to a 3 28 factor as MP falls +vely till zero 0 z 2 | _28 + 3rd : Negative returns to a factor 5 ~» | * 1 =" becomes negative a” |. « stuctary MICROECONOMICSvarious phases of lato of varia lege a Slee 350 | 180 | 180 | 140 180 unit i; PRODUCER and indicate #! iable factor Example 9 Calculate the MP of variable fi {from the following schedule : On Solution. ae Variable Tein Units) | mp(in Units) [ee new eed Factors ar : : Z ist: Increasing returns to a ay factor as MP rises | 1 | 40 | | 2 10 70. << 40 2nd : Diminishing returns bl to a factor as MP falls, 4 180 30 +vely till zero 5 180 o! au 40 3rd : Negative returns to a : “ factor as MP is negative LY? K¥?, Find the maximum possible output tas Example 10 Let the production function of a firm be Q = 51 (Nor {firm can produce with 100 units of L and 100 units of K. Solution. Given : Q=5L"?K" and L=100 units ; K Putting the values of L. and K in the given production function, we get, = 5(100)"? 100)" ie, Q=5v100-100 : Q= 500 units Maximum output = 500 units. Example 11 Let the »oduction function of a firm be : Q=212K? 00 units. Putting the values of L and K in the given Producti ction: Q=2(5)7(2)? = 200 units 2. Maximum output =200 units Maximum possible output with 0 unj unit of Land 10 uni units of K Given: Q=217K*, L=Ounits K=10u » K=10units \ Putting the values of L and K in the gin iven Q= 20)7(10)2 =Ounit :. Maximum output = 0 unit, Production function, we get los Medectory MICROECONe nameChapter 5 : PRODUCTION FUNCTION 181 Liample 12. Find the maximum possible output for a firm with zero unit of L and 10 units of K when its poiuction function is : Q=5L+ 2K. Solution. Given: Q=5L+2K, L=Ounit, K=10units Putting the values of L and Kin the given production function, we get Q = 5(0) + 2(10) = 20 units . Maximum outputs = 20 units. Orestion Bank “WnPLE CHOICE QUESTIONS