Production Behaviour and Types of Production Function

Here we will discuss a topic of Economics ‘Production Behaviour and Types of Production Function’ for Class 12 based on the pattern of NCERT / CBSE Class 12 Economics.

Production Behaviour

Production is a process where inputs or factor services are transformed into outputs. For example, to produce shoes, inputs required are land, labor, capital, leather, glue, machine, etc.

The functional relationship between inputs and outputs refers to the Production Function. It refers to the maximum quantity a firm can produce per unit of time with a given amount of inputs when the best production techniques are available.

“Production Function is the relationship between physical inputs and physical output of a firm”. Watson

It can be expressed in terms of graph, table, and equation.

Y=f(L,K,S)

Y – Output (production)

L-labor

K-capital

S-land

Time Periods

Short Run– it is the time period when fixed factors cannot be changed. In short, run fixed factors remain the same and variable factor changes. The law of variable proportion applies here.

Long Run– it is the time period when all the factors of production (fixed and variable) can be changed. In the long run law of returns is applied.

Types of Production Function

A short term production function

In a short-run production function, one input is variable and all other inputs are constant. The behavior of output when one input is changed and other inputs are fixed is known as Returns to factor.

Long-term production function

In a long-run production function, all inputs are variable. When all the inputs used in the production of a commodity changed simultaneously in the same proportion and lead to change in output, it is known as the long-term production function. The behavior of output when all the factors of production changes are known as Returns to scale.

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Concepts of Total Product, Average Product, and Marginal Product

Total Product or Total Physical Product

It refers to the total amount of quantity of the commodity produced during some period of time by combining a particular quantity of variable factor with the fixed factor.  The total volume of goods and services produced in the specified time period is known as Total Product or Total Returns

It is also referred to as the sum total of Marginal Product.
TP=∑MP
Average product or Average Physical Product
It refers to output per unit of a variable factor. It is also known as Average returns. It is a per-unit production of a variable factor
AP=(Total Product)/(No of units of a variable factor)=TP/L
L =Labour (no of units of the variable factor)
Marginal Product or Marginal Physical product
It refers to the change in the total product resulting from one additional unit of a variable factor.
MP=ΔTP/ΔL
MP=TP_(n+1) – TP_n

MP= Marginal Product

Δ= Change

L= labour Total product for n+1 units of factor

TP_n = Total product for n units of factor

TP_{(n+1) =} Total product for n+1 units of factor

Relationship between Average Product and Marginal Product

• Initially AP and MP production goes on increasing
• AP increase when MP is greater than AP
• At maximum AP=MP
• AP decrease when MP is less than AP

Relationship between Total Product and Marginal Product

• Initially, TP and MP production goes on increasing
• When MP increases, TP increases at an increasing rate.
• When MP is constant, TP increases at a constant rate.
• When MP decreases, TP increases at a diminishing rate.
• TP is maximum when MP is zero
• TP is negative when MP declines.

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Important tags : Production Behaviour and Types of Production Function / Types of Production Function / types of production in economics