PRODUCTION

FUNCTION
Law of variable proportions
and returns to scale
01 03
INTRODUCTIO METHODOlOGY
N Processes involved in
calculation of production
Describe the topic function

02 04
INPUT AND CONCLUSION
OUTPUT S
Factors determining Return of scale
production
 INTRODUCTIO
N
In economics, a production function
represents the relationship between
The production function can be
mathematically
expressed or graphically to analyze
inputs (such as labor, capital, and the efficiency of production, determine
technology) and outputs (goods and optimal input combinations, and
services) in the production process understand the factors influencing output
of a firm or an economy. It shows levels. Overall, the production function
how much output can be produced is a fundamental concept used to study
from a given combination of inputs, and analyze the process of transforming
considering the existing technology inputs into outputs in economic
and production methods. activities.
 01
INPUT :
fACTORS Of
PRODUCTIO
1.
2.
N LABOR
CAPITAL
3. LAND
4. ENTREPRENEURSHIP
 lABO
1. R by an individual to bring a product or
Labor refers to the effort expended
service to the market.

2. Production workers are paid for their time and effort in wages that depend
on
their skill and training.

3. For example, an accountant’s job requires the analysis of financial data for
a company. Countries that are rich in human capital experience increased
productivity and efficiency. The difference in skill levels and terminology
also helps companies and entrepreneurs create corresponding disparities in
pay scales.
 CAPITAL
1. In economics, capital typically refers to money. However, money is not considered
part of the capital factor of production

2. Capital goods are items that allow a person or business to produce goods and
services.

3. It is important to distinguish personal and private capital in factors of production.

A personal vehicle used to transport family is not considered a capital good, but a
commercial vehicle used expressly for official purposes is.
 LAN
1. Land has a broad definition as aDfactor of production and can take on various
forms, from agricultural land to commercial real estate to the resources
available from a
particular piece of land

2. Natural resources, such as oil and gold, can be extracted and refined for human
consumption from the land.

3. While land is an essential component of most ventures, its importance can diminish
or increase based on industry. For example, a technology company can easily begin
operations in the founder's home with zero business investment in land.
 ENTERPRENEURSHI
P
1.Entrepreneurship is the secret sauce that combines all the other factors of production
into a product or service for the consumer market.

2. An example of entrepreneurship is the evolution of the social media behemoth

Meta (META), formerly Facebook.
 MATHEMATICAl fORM Of PRODUCTION
fUNCTION

1. The Production function is represented by Q, Labour

(Variable element) is represented by L, and Capital
(Fixed element) is represented by K.
Q = f(L,K)
2. For example if it is written as:
Q=K+L for a firm where K is investment and L is labor .
3. Hence increasing production factors will increase
production
PRODUCT
S TOTAL
PRODUCT

MARGINAL
PRODUCT

AVERAGE
PRODUCT

TOT
Al
Total Product refers to the
total quantity of goods
that the firm produced
during a given course of
time with the given
number of inputs. Total
Product is also known as
Total Physical Product
(TPP)
MARGIN
Al
Marginal Product refers to
the addition to the total
product when one more
unit of a variable factor is
employed. It calculates the
extra output per
additional unit of input
while keeping all other
inputs constant.
PRODUC
TS
AVERA
GE
Average Product: Average
Product refers to output
per unit of a variable
input. For example, if the
total product is 60 kg of
wheat produced by 6
labours, then the average
product will be 60/6,
i.e., 10 kg.

FIXED
fACTORS
Fixed Factors are the factors that can
not be changed in the short run. The
number of fixed factors always remains
constant even when is zero
production.
Fixed factors include land,
capital, building, etc
TYPE Of
fACTORS
VARIABlE
fACTORS
Variable Factors are the factors that can be
changed during the course of the short run.
Variable factors vary with the level of
output. Employment of variable factors is
not required when there is no production.
Variable factors include labour, power, fuel,
etc.
 TYPES OF PRODUCTION
FUNCTION
Production function on the basis of the time period can be divided into two categories: Short Run
Production Function and Long Run Production Function. In these production functions, the
combination and behaviour of variable factors and fixed factors are different.

1. Short Run Production Function: Short Run is a period of time where output can only be
changed by changing the level of variable inputs. In the short run, some factors are
variable and some are fixed. Fixed factors remain constant in the short run like land,
capital, plant, machinery, etc
2. Long Run Production Function: Long Run is a span of time where the output can be
increased by increasing all the factors of production whether it is fixed (land, capital,
plant, machinery, etc.) or variable (labour).Long run is enough time to alter all the factors of
production. All factors are said to be variable in the long run
 LAW Of VARIABlE
PROPORTION

1. Law of variable proportion is also known as the Law of Proportionality. When

the variable factor becomes more, it can lead to negative value of the marginal
product.
 STAGES Of l AW Of VARIABlE
PROPORTION
1. First Stage or Stage of Increasing returns: In this stage, the total product increases at an increasing rate.
This happens because the efficiency of the fixed factors increases with addition of variable inputs to the
product.

2. Second Stage or Stage of Diminishing Returns: In this stage, the total product increases at a
diminishing rate until it reaches the maximum point. The marginal and average product are positive
but diminishing gradually.

3. Third Stage or Stage of Negative Returns: In this stage, the total product declines and the marginal
product becomes negative.
 LAW OF RETURNS TO
SCALE
Returns to scale refer to the change in output that results from a change in the factor inputs
simultaneously in the same proportion in the long run. Simply put, when a firm changes the
quantity of all inputs in the long run, it changes the scale of production for the goods..

1. Three Stages of Returns to Scale

2. According to the Law of Returns to Scale, when all the factor inputs are varied in the
same proportions, then the scale of production may take three forms; viz., Increasing
Returns to Scale, Constant Return to Scale, and Diminishing Returns to Scale
 CONCLUSION
S

1. In conclusion, the production function in economics provides a fundamental framework for

understanding how inputs are transformed into outputs in the production process. It
elucidates the relationship between factors of production such as labor, capital, land,
and technology, and the resulting level of output. Through concepts like total product,
marginal product, average product, and returns to scale, the production function helps
analyze production efficiency, optimal input combinations, and factors influencing output
levels.
2. By studying the production function, economists, firms, and policymakers gain insights
into resource allocation, productivity enhancement, and decision-making regarding
production processes.
THANK
S
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