Production

submit by Babalu Prajapat

McGraw-Hill/Irwin Colander, Economics 1

What is Production
Manufacturing

the commodity and service

Satisfy

the human needs

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Colander, Economics

Concept of production
Total

Production Production Production

Average

Marginal

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Colander, Economics

The Production Function

The production function can be divided into the long run and the short run Short run A firm is constrained in regard to what production decisions it can make Some inputs are fixed Long run A firm chooses from all possible production techniques All inputs are variable

The terms long run and short run do not necessarily refer to specific periods of time, but to the flexibility the firm has in changing the level of output
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Production Tables and Production Functions

Firms combine factors of production to produce goods and services

A production table is a table showing the output resulting from various combinations of factors of production or inputs

Real-world production tables are complicated This analysis will concentrate on short run production when in which one of the factors is fixed

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A Production Table
# of workers 0 1 2 3 4 5 6 7 8 9 10 Total Output 0 4 10 17 23 28 31 32 32 30 25 Marginal Product 4 6 Average Product --4 5 5.7 5.8 5.6 5.2 4.6 4.0 3.3 2.5
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Average product is the output per worker

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6 5 3

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Marginal product is the additional output that will be forthcoming from an additional worker, other inputs constant

Graphing a Production Function

Q
32 26 20 14 8 2 1 2 Increasing marginal productivity 3 4 5 6 Diminishing marginal productivity 7 8 9 10 Diminishing Absolute productivity Number of workers

TP

A production function is the relationship between then inputs and the outputs

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Graphing Marginal and Average Productivity

8

6
4 2

Eventually marginal Marginal Then marginal productivity productivity is productivity first increases declines negative

AP
1 2 3 4 5 6 7 8 9 10 Number of workers

0
-2 -4

-6 Increasing marginal productivity

MP
Diminishing marginal productivity Diminishing Absolute productivity
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Law of Diminishing Marginal Productivity

# of workers 0 1 2 3 4 5 6 7 8 9 10 Total Output 0 4 10 17 23 28 31 32 32 30 25 Marginal Product 4 6 Average Product --4 5 5.7 5.8 5.6 5.2 4.6 4.0 3.3 2.5

7
6 5 3

Law of diminishing marginal productivity states as more of a variable input is added to an existing fixed input, after some point the additional output from the additional input will fall Increasing marginal productivity Diminishing marginal productivity Diminishing Absolute productivity
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1
0 -2 -5

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Colander, Economics

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