PRODUCTION PPT in short run and long run

production function in economics

1. Production
➢ Production refers to
transformation of inputs into
output.
➢For example : To manufacture
shoes (output), we need various
inputs like leather, nails, land,
labour, capital, services of
entrepreneur etc.
A producer or a firm acquires different inputs like labour, machines, land, raw
materials, etc . Combining these inputs , it produces outputs. This is called the
process of production .
Theory of Production focuses on how a rational producer firms his production
decisions, how much to produce, how to minimise the cost of production and
maximise the profit, how a producer attains equilibrium.
Production Function is an expression of the technological relation between physical
input and output of a good.
Algebraically, a production function can
be represented as: Qx = f(L, K)
L = units of labour, K = units of capital
Qx = units of output produced

2. उत्पादन
उत्पादन से तात्पर्य इनपुट को आउटपुट में
बदलने से है।
उदाहरण के ललए: जूते (आउटपुट) बनाने
के ललए हमें चमडा, नाखून, भूलम, श्रम,
पूूंजी, उद्र्मी की सेवाएँ आदद जैसे
ववलभन्न इनपुट की आवश्र्कता होती है।
एक उत्पादक र्ा फमय अलग-अलग इनपुट जैसे श्रम, मशीन, भूलम,
कच्चा माल आदद प्राप्त करता है। इन इनपुट को लमलाकर वह
आउटपुट तैर्ार करता है। इसे उत्पादन की प्रक्रिर्ा कहते हैं।
उत्पादन का लसद््ाूंत इस बात पर केंदित है क्रक एक तकयसूंगत
उत्पादक अपने उत्पादन ननणयर् कै से लेता है, क्रकतना उत्पादन करना
है, उत्पादन की लागत को कै से न्र्ूनतम करना है और लाभ को
अध्कतम कै से करना है, एक उत्पादक सूंतुलन कै से प्राप्त करता है
उत्पादन फलन क्रकसी वस्तु के भौनतक इनपुट और आउटपुट के बीच
तकनीकी सूंबूं् की अलभव्र्क्तत है।
बीजगणणतीर् रूप से, उत्पादन फूंतशन
को इस प्रकार दशायर्ा जा सकता है: Qx
= f(L, K)L = श्रम की इकाइर्ाँ, K = पूँजी
की इकाइर्ाँQx = उत्पाददत आउटपुट
की इकाइर्ाँ

3. The differences between Short Run and Long Run are :
Short Run Long Run
➢It refers to a period in which output can be changed by
changing only variable factors.
➢ In Short Run, fixed inputs like plant, machinery, building,
etc. cannot be changed.
➢ In short Run, some factors are fixed and some are variable
and fixed factors cannot be changed during a short span of
time.
➢ Factors are classified as variable and fixed factor in the
short run.
➢ In short run, demand is more active in price determination
as supply cannot be increased immediately with increased
in demand.
➢This implies that the output can be increased (or decreased)
by employing more (or less) of variable factor, i.e. labour
only.
➢It refers to a period in which output can be changed by
changing all factors of production.
➢It is long enough for the firm to adjust all its inputs
according to change in the conditions in the long run.
➢In long run, firm can change its factory size, switch to
new techniques of production, purchase new machinery,
etc.
➢All the factors are variable in the long run.
➢ In the long run, both demand and supply play equal role
in price determination as both can be increased.
➢It must be noted that as in the long run, output can be
varied by changing both types of inputs, so we can say
that in long run all factors of production are variable.

4. लघु अवध् और दीघय अवध् के बीच अूंतर हैं
अल्पावधि दीर्घ अवधि
➢र्ह उस अवध् को सूंदलभयत करता है क्जसमें केवल
पररवतयनीर् कारकों को बदलकर उत्पादन को बदला जा
सकता है।
➢अल्पावध् में, सूंर्ूंत्र, मशीनरी, भवन आदद जैसे क्स्िर
इनपुट को नहीूं बदला जा सकता है।
➢अल्पावध् में, कुछ कारक क्स्िर होते हैं और कुछ
पररवतयनशील होते हैं और ननक्श्चत कारकों कोकम समर्
के दौरान नहीूं बदला जा सकता है।
➢कारकों को अल्पावध् में पररवतयनशील और क्स्िर कारक
के रूप में वगीकृत क्रकर्ा जाता है।
➢अल्पावध् में, मूल्र् नन्ायरण में माूंग अध्क सक्रिर् होती
है तर्ोंक्रक माूंग में वृद्ध् के साि आपूनतयको तुरूंत नहीूं
बढार्ा जा सकता है।इसका तात्पर्य र्ह है क्रक अध्क (र्ा
कम) पररवतयनीर् कारक, र्ानी के वल श्रम को ननर्ोक्जत
करके उत्पादन को बढार्ा (र्ा घटार्ा) जा सकताहै
➢र्ह उस अवध् को सूंदलभयत करता है क्जसमें
उत्पादन के सभी कारकों को बदलकर आउटपुट को
बदला जा सकता है। र्ह फमय के ललए लूंबे समर् में
क्स्िनतर्ों में बदलाव के अनुसार अपने सभी इनपुट
को समार्ोक्जत करने के ललए पर्ायप्त समर्है।
➢लूंबे समर् में, फमय अपने कारखाने के आकार को
बदल सकती है, उत्पादन की नई तकनीकों पर
क्स्वच कर सकती है, नई मशीनरी खरीद सकतीहै,
आदद।
➢लूंबे समर् में सभी कारक पररवतयनशील होते हैं। लूंबे
समर् में, माूंग और आपूनतय दोनों ही मूल्र् नन्ायरण
में समान भूलमका ननभाते हैं तर्ोंक्रक दोनों को बढार्ा
जा सकता है। र्ह ध्र्ान ददर्ा जाना चादहए क्रक लूंबे
समर् में, दोनों प्रकार के इनपुट को बदलकर
आउटपुट को अलग-अलग क्रकर्ा जा सकता है,
इसललए हम कह सकते हैं क्रक लूंबे समर् में
उत्पादन के सभी कारक पररवतयनशील हैं।

5. ➢The law which explains this short run concept is called Law of Variable Proportions or Returns to Factors . A
short run production function is expressed as:
L represents units of labour used
K represents constant units of capital used
Q x represents units of output x produced
➢The law which this long run concept is called Returns to Scale explains. The long run production function is
expressed as: Q x = F(L,K)
इस लघु अवध् अव्ारणा को समझाने वाले कानून को पररवतयनशील अनुपात र्ा कारकों पर ररटनय का ननर्म कहा जाता है। एक लघु अवध्
उत्पादन समारोह इस प्रकार व्र्तत क्रकर्ा जाता है:
L प्रर्ुतत श्रम की इकाइर्ों को दशायता हैK प्रर्ुतत पूूंजी की क्स्िर इकाइर्ों को
दशायता हैQ x उत्पाददत आउटपुट x की इकाइर्ों को दशायता है
इस दीघयकालीन अव्ारणा को पैमाने पर प्रनतफल कहते हैं। दीघयकालीन उत्पादन फलन को इस प्रकार व्र्तत क्रकर्ा जाता है: Q x = F(L,K)

6. Types of factors of Production
Variable Factors Fixed Factors
➢It refers to those factors, which can be changed in
the short run.
➢It varies directly with the level of output and is not
required in case of zero output.
➢For Example : Raw material, casual labour, power,
fuel, etc.
➢They vary directly with output.
➢Raw material, casual labour, power, fuel, etc
➢The output can be increased or decreased by
employing more or less units of variable factors,
ceteris paribus .
➢It refers to those factors, which cannot be changed
in the short run.
➢ They do not vary directly with the level of output.
For Example : Plant and machinery, building, land,
etc.
➢ These fixed factors remains constant even at the
zero level of output.

7. Total Product (TP) : It refers to total quantity of goods produced by a firm during a given period of time with given number of
inputs. For Example: If 10 labours produce 60 kg of rice, then total product is 60 kg.
It is also known as ‘Total Physical Product (TPP)’ or ‘Total Return’ or ‘Total Output’.
Average Product (AP) : It refers to output per unit of variable input. For Example: If TP is 60kg of rice, produced by 10 labours,
then average product will be 60/10 = 6 kg.
It is also known as ‘Average Physical Product (APP)’ or ‘Average Return’.
Average Product = T���?????? ??????������ (�??????)/ ����� �� ������??????� ??????����� (�)
Marginal Product (MP : It refers to addition to total product, when one more unit of variable factor is employed. For Example: If
10 labours make 60 kg of rice and 11 labours make 67 kg of rice, then MP of 11th labour will be 7 kg. It is also known as ‘Marginal
Physical Product’ or ‘Marginal Return’.
Marginal Product =C����� �� ����?????? ??????������ /C����� �� ����� �� ������??????� ??????����� = ∆ �??????/ ∆ � = TPn – TPn -1

8. Law of Variable Proportion (LVP)
➢ Law of Variable Proportions states that as we increase quantity of only one input keeping other inputs fixed,
total product (TP) initially increases at an increasing rate, then at a decreasing rate and finally at a negative
rate.
➢ It is also known as ‘Law of Returns’ or ‘Law of Returns to Factor’ or ‘Returns to Variable Factor’
Law of Diminishing Marginal Product:
According to the Law of Diminishing Marginal Product, if the employment of variable factor is kept on increasing along with
the constant level of the fixed factor, then finally a point will be reached whereafter, the marginal product of the variable factor
will start falling and after this point the marginal product of any additional variable factor can be zero and even be negative.
While the Law of Variable Proportions is based on the Total Product of a firm, whereas, the Law of Diminishing Marginal
Product is based on the marginal product of the variable factor.
Assumptions :
a)Law of Variable Proportions always operate in short run.
b) This law applies to field of production only.
c) The effect of change in output due to change in variable factor can be easily determined.
d) It is assumed that all variable factors are equally efficient. e) The state of technology is assumed to be constant during the
operation of this

9. Explanation of Law of Variable Proportions/Law of Diminishing Marginal Returns In order to
understand the laws and how they operate let us analyse the following schedule and the figure.

10. Different Phases of Law of Variable Proportion
Phase I : Increasing Returns to a Factor (TP increases at an increasing rate) :
In the first phase, every additional variable factor adds more and more to the total output. It means TP increases at an
increasing rate and MP of each variable factor also rises.
Phase II : Diminishing Returns to a Factor (TP increase at diminishing rate) :
In the second phase, every additional variable factor adds lesser and lesser amount of output. It means TP increases at a
diminishing rate and MP falls with increase in variable factor.
Phase III : Negative Returns to a Factor
In the third phase, the employment of additional variable factor causes TP to decline and MP becomes negative. This phase
is known as negative returns to a factor.

11. Reasons for Increasing Returns to a Factor
1.Underutilisation of the fixed factor-
2.2. Division of labour-
3.Specialisation of labour-
4. Increased Efficiency of Variable Factor
5. Indivisibility of fixed factor
Reasons for Decreasing Returns to a Factor
1. Fuller utilisation of fixed factor
2. Imperfect substitutability between labour and capital
3.Over-utilization of Fixed Factors :
Reasons for Negative Returns to a Factor
1.Over utilisation of the fixed factors
2.Negative marginal product
3.Problem of management

15. Isoquant/Iso-product Curve/Equal-product Curve Isoquant
It refers to the curve that depicts different input combinations which can produce the same level of output.
Throughout the isoquant curve, we have the same level of output produced but with different input
combinations. The figure below represents IQ as an isoquant curve which is associated with units of output
produced.

16. Properties of Isoquant curve
1. Negative Sloped from Left to Right
2. Isoquants are convex to the origin
3.
Higher isoquant curve from origin represents higher output level
4. Two isoquants can never intersect each other
5. Isoquants can never be parallel to the vertical and horizontal axis
Iso Quant is the combination of capital and labour inputs to generate an equal amount of output is what an
isoquant graph is all about. Isoquant uses the formula of MRTS.
Since the slope of an iso quant is represented in negative.
MRTS (L, K) = – ΔK/ΔL = MPL/MPK where:K – CapitalL – LaborMP – Marginal Products of inputs ΔK/ΔL –
Amount of capital that can be reduced when labour is increased. The graphical representation calculates
MRTS at any given output level as dL/dK.

17. An isoquant shows all combination of input factors that produce a certain output; An isocost showall combinations of
factors that cost the same amount.

18. PRODUCER EQUILIBRIUM
The basic objective of rational producer is to maximize his profits and produces a given quantity of output
with that combination of factors that is ‘OPTIMUM’. The optimum combination of resources is that
(1) Which minimize the cost of production for producing a given level of output.
(2) Which produce maximum level of output for a given cost of production. Thus, there are 2 cases of
producer’s equilibrium:
1.Minimization of cost subject to an output constraint.
2.2. Maximization of output subject to a cost constraint.
3.Case I Minimization of cost subject to an output constraint If the level of output is given and producer
aims to minimize the total cost of production, then he will be faced with
4.(a) A single isoquant IQ showing output constraint
5.(b) A series of iso-cost lines. Higher iso-cost line represents higher money outlay. All iso-cost lines are
parallel to one another because slope of all iso-cost line is same as the factor prices remains constant.
The producer will be at equilibrium where the given isoquant is tangent to the lowest
.
The first-order condition for a producer to be in equilibrium is that he employs labour and capital such that the ratio
of the marginal products of the factors of production is equal to the ratio of the factors prices.
The second-order requires that the isoquant should be convex to the origin as in the figure since marginal rate of
technical substitution is diminishing.