Theory of Production

Production function
PF states thet output is a function of input.
q = f (x1, x2)
where q = quantity of output produced
and x1=quantity of input 1
x2= quantity of input 2
In a production process, factors of production are inputs eg Land, Labour, Capital, raw materiala etc.The factors of production are combined to make goods and services. Choices have to be made over what to produce and how to produce.

Short run - short run is that period of time in which only variable input can be changed. value of fixed input can't be changed. the duration of short run varies according to industry. For some industries 1 month is a short run but for other industies 1 month is long run. EG. For steel industry 1 yr is also considered short run

Long run - Long run is that period of time in which both fixed and variable input can be changed. value of fixed as well as variable input can be increases or decreased.. the duration of long run varies according to industry. For some industries 1 month is a short run but for other industies 1 month is long run. EG. For steel industry 1 yr is also considered short run, but for a plastic factory, it is considered long run.


Total product

The factors of production are combined to make goods and service. The value of total production by using all factors of production is known as Total product or total output.


Marginal product
The marginal product is the output produced by one more unit of a given input. or we can say the addition made to total product(output) by one extra unit of input. Eg. 5 workers are producing 100 quintals of wheat and if 1 more labour is added ( now toal labour becomes 6), the output increases to 130 Quintals. So, the increase in output because of the additional unit of labour is 30 quantals(130-100), which is the marginal product of 6th unit of labour.
MP = change in output / change in input =30/1

Average product
Average product is defined as the output per unit of variable input. We calculate
it as Total Product/no. of units employed. In the above example , when 5 labours were working
AP= 100/5 and when 6 labours were working AP= 130/6

Relationship b/w AP, MP and TP
the reationship b/w AP, MP and TP can be understood by a table and Graphs.
Suppose, there are only 2 factors of production land(fixed) and labour(variable).Now we will see how an additional unit alters the value of AP, MP and TP.

Units of Factor (n)	TP	MP = TPn-TPn-1	AP= TP/n
0	0	-	0
1	10	10	10
2	24	14	12
3	40	16	13.33
4	56	16	14
5	62	6	12.4
6	63	1	10.5

Plotting the above data on a curve would give the following graphs -






In the above Diagrams, we will see

- As we employ more of factor 1, then TP goes on increasing.
- Initailly, average Product is less than Marginal Product.
- As, we keep on employing more and more input, Average and marginal product start declining after a certain level.