CBSE class 11 Microeconomics notes chapter 5 Production Function

Chapter 5  Production Function

• Production:  It refers to the conversion of inputs into output.

• Production Function: It refers to the functional relationship between production and its factors.

Long run is not in syllabus

• Short Run Period: It refers to the time period in which only variable factor can be changed, not the fixed factors.
• Long Run Period: It is the time period in which all the factors of production can be changed, whether fixed or variable.
• Variable factors: These are those which can be changed in the long run and short run period both.
  for example: Raw materials, Labour etc.
• Fixed Factors: These are those factors of production which can be changed only in the long run.
  for examples: plant, machinery, Building etc.
  
     Products
• Total Physical Product or Total Ptoduct: It refers to the total product produced by a firm in a given period of time.
• Marginal Physical Product or marginal product: It refers to the additional good produced by employing an additional unit of labour.
  MPP = TPPn - TPPn-1
    OR
  MP = change in TP
            change in N

• Average Physical Product or average product: It refers to the per unit production.
• APP or AP = TPP
                          N
  
  Law Of  Variable Proportion     or    Returns To Factor   or
  Short Run Law 
• Statement: This law stats that as we employ more variable factors over the fixed factors then TP:
  (a). First Increase at an increasing rate.
  (b). Then increases at a diminishing rate.
  (c). And  finally starts falling. 
• Assumption:
  (1). This law applies in short run period only.
  (2). All the factors of Production are equally efficient.
  (3). Technology remains same.
• Schedule:
  
  
  

  
  
• Diagram:
  
  

• Stages And Causes: 
  (a). Increasing Returns To Factors:
   1. In this stage TP increases at increasing rate and MP also increases.
  2. When production begins and we employ the variable factors over fixed factors it leads to  optimum utilization of resources as there division of labour and specialization.
  3. I n this stage the fixed  factor is utilized to its fullest level.
  4. Here variable factor are either less or equal fixed factors capacity.
  (b).Diminishing Returns to Factor:
  1. In this stage, TP increases at a diminishing rate and MP falls.
  2.Here variable factor is more than fixed factor capacity.
  3. In this stage, there is use of fixed factor beyond its capacity because of which MP falls.
  4.This stage is the "Real Stages of Production" as all the producers like producing in the stage as TP is maximum.
  (c).Stage of negative returns to Factors:
  1.Here the TP starts falling and MP becomes negative.
  2. None of the producer like to produce in this stages, so they stop production as MP is Negative.
  3.This happens due to over burdening of fixed factors. 

Relationship between TP & MP

• Diagram:
  
  

(a). when TP increases at an increasing rate, MP increases.
(b).When TP increases at a diminishing rate, MP falls but positive.
(c). When TP is maximum, MP is zero.

Relationship between AP & MP 

• Diagram:
  
  
  
  (a). When MP rises, AP rises but falls below MP.
  (b).When MP falls, it cuts AP at its maximum from above.
  (c). When MP falls, AP also falls but MP falls at a higher rate.
  (b). When MP becomes negative, AP still remains positive.
•  Most Important Questions:
  Q1. Explain the Law of Variable Proportion?
  Q2. Explain the relationship between TP and MP?
  Q3. Explain the relationship between AP and MP?