Concept of Production Function

The Theory of Production explains the relationship between input and output. This relationship also explains the functional relationship between input and output of the firm. In simple word, we can explain the production function as the functional relationship between the physical inputs and physical output. The production can be expressed in the form of the following equation:

Q = f (L, La, C, O)

Where,

Q = Quantity

L = Land

La = Labour

C = Capital

O = Organization

Types of production function

1) Long-run production function: In a long run, all factors of production can be varied. It means, in the long run, we can also expand or reduce the scale of production. It is related to a long period.

2) Short-run production function:In the short run some factor are fixed and some are variable. It is related to the short period, it is called short run production.

Concept of Total Product, Average Product, and Marginal Product

Total Product (TP)

The sum of the total quantity of goods and services produced by a firm in a given period of time by using various inputs is called total product. The total product changes with the change in inputs. It can be calculated in two ways. They are:

a) TP = MP₁ + MP₂…..+ MP_n

where, TP = Total product,

MP₁ = 1^st Marginal product

MP₂ = 2^nd Marginal product

b) TP = AP * Q

TP = Total product

AP = Average product

Q = Quantity

In above table, different stages of production are shown. In 1^st unit, the total production is 10 and it increases up to 3^rd stage. In 4^th stage, it increases up to 80 and when one labour is added it become 90 and remains constant and it decreases and become 80 in the 7^th unit.

Average Product (AP)

Average product means the per unit product. In another word, the total product divided by the total input is called average product.

AP =TP/N

Where,

AP = Average product

TP = Total product

N = No. of input

This can be explained with help of the following table:

In the above table, the AP is 10 when the input is 1. As the inputs are continuously added the TP increases rapidly in increasing order and AP is 15 which is also increasing at the first rate. Up to the 3^rd unit, AP increases rapidly but after that, it remains constant for a while in the 4^thunit. Then, it slowly starts to decreases. At last, AP becomes 11.4 at the 7^th input.

Marginal Product (MP)

Marginal product is the net additional product to the total product made by added unit of other input. In another word, it is the increasing total product due to the change in fashion of production.

MP = TP₂ – TP₁

MP = Marginal product

TP₁ = 1^st Total product

TP₂ = 2^nd Total product

This can be explained with the help of the following table:

In the table, when the input is 1, the MP is 10. Here along with the increase in input, the MP also continuously increases but in a slow rate. Up to 3^rd input, the MP increases from 10 to 30 but from 4^th input, MP decreases from 30 to 20 and to 10 at the 5^th unit of input. Then, in a sixth input, MP becomes zero. When one more input is added to 7^th input, the MP becomes negative.

(Karna, Khanal, and Chaulagain)(Khanal, Khatiwada, and Thapa)(Jha, Bhusal, and Bista)

Bibliography

Jha, P.K., et al. Economics II. Kalimati, Kathmandu: Dreamland Publication, 2011.

Karna, Dr.Surendra Labh, Bhawani Prasad Khanal and Neelam Prasad Chaulagain. Economics. Kathmandu: Jupiter Publisher and Distributors Pvt. Ltd, 2070.

Khanal, Dr. Rajesh Keshar, et al. Economics II. Kathmandu: Januka Publication Pvt. Ltd., 2013.