class 11 theory of production

Theory of production

Saturday, December 25, 2021 6:23 AM

concept

Theory of production is defined as activities which
creates utility or value. It deals with the process in which
raw materials or intermediate goods are conversed into
final or finished goods. Production can done by either
changing size ,time, place ,form, space, possession or by
above all.
production function : production function is a technical
or mathematic relationship between inputs of
production and output .A production function can be
represented in form of table ,graph or mathematical
equation .
Production function can be divided into two types
1) Short run production function: short run is defined as

a period of time during which available inputs or
factors of production like land, capital, management
body ,machinery tolls equipment etc. cannot be
varied . Some inputs are fixed while others are

variable .mathematically

Where :

2) Long run production function : Long run is a time
period in which all inputs of production can be
varied . The production function take the form
Q=f(L,K) .

Define total product marginal product and average
product
Total product(TP) : The total amount of output produces

Microeconomics Page 1

Total product(TP) : The total amount of output produces
by firm or an industry by using various inputs in a given
period of time is called total product. It increase with
increase in inputs .
Average Product (AP):Average product is the per units
product of an input .
Marginal product (MP) : the additional output produced
by a firm or an industry by using one more units of an
input is called marginal product. So, marginal product is
the change in total product due to per unit change in
the unit of variable factor
Mathematically

Where

Microeconomics Page 2

LVP 8:36 AM

Sunday, October 18, 2020

( law of variable proportion

Explain the law of variable proportion
the law of variable proportion which is basic law in theory of production. It is the short run analysis
of production. It analysis the short run when variable factors keep on increasing with the given fixed
factors. Combine proportion of variable and fixed factors is varying .The change in level of output with
variable proportion of inputs follows a rule in economics which is called the law of variable proportion
Statement of law
The law of variable proportion states that when more and more units of variable factors are
combined with fixed factors then the total products initially increases at increasing rate then it
increased in decreasing rate become maximum and ultimately TP begins to fall, likewise AP and MP
also increase in the beginning become maximum and start to decrease "
Assumption
• One factor is variable while other input are fixed
• Inputs are used in varying proportion
• All the units of variable factors are identical
• There is short period of operation
• The law operate in production field
Examination of the law
The law of variable proportion can be explained with the help of following table and diagram.

Land (Hec) Labour ratio TP AP MP Stage of production

10 1 10:1 20 20 20

10 2 50 25 30 Stage I

10 3 90 30 40

10 4 120 30 30

10 5 140 28 20 Stage II

10 6 150 25 10

10 7 150 21.4 0

10 8 140 17.5 -10 Stage III

in the given table land is fixed whereas labor is a variable factor . Third column shows inputs (land
and labour) are used in varying proportion. Table shows the nature of TP, AP and MP where numbers
of workers change keeping area of land fixed . TP has increase at increasing rate , reaches the
maximum at second stage . It is shown in the following figure

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In the above figure , units of labors are shown on X-axis. TP,MP,AP are shown on Y-

axis. The curves denoted by TP,MP,AP are total product ,average , marginal product

curves respectively

Three stages of this law are

Stage I

This stage is also known as stage of increasing return .

Here
 TP and AP both are increasing .
 MP increase , become maximum and starts to falls
 MP is greater then AP
 Stage I ends at the points where MP=AP

Stage II

This stage is also known as stage of diminishing return .

Here
 TP increase at decreasing rate and become maximum
 MP is continuously falling and become Zero
 AP start to falls , but AP>MP
 Stage end at the points where MP=0 or TP becomes maximum.

Stage III

this stage is also known as stage of negative returns .Here
→ TP starts to falls
→ MP become negative
→ AP is continuously falling

Conclusion

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Conclusion
The law of variable proportion is applicable in production and agriculture .The
production follows the rule of law of variable proportion .
Stage of production : A rational producer choose II stage considering the objective
and price of commodity .

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CRS 8:37 AM

Sunday, October 18, 2020

Law of return to scale
Law of return to scale is the long run production function which explains the behaviors of
output when quantity of factors of production are changed in the same proportions . It
explains by what percentage of output change , If there is given percentage change in all
inputs due to availability of more time .
There are there are three phase of return to scale
1) Increasing Return to scale
2) Constant return to scale
3) Decreasing return to scale

What is constant return to scale ?
Constant return to scale:
it is one of the types of return to scale .When the output increase by the same
proportion as that of increase in input then the productions scale is known as constant to
scale . In this case , one percentage increase in inputs increase the output by exactly one
percentage .In this stage production economies and diseconomies are equal .It can be
explain with the help of following table
Total inputs total amount of output Result

200

400 Constant return to scale

800

in the table , one unit labor and one unit capital produce 200 units of output .As both
inputs are increased by 100 % ie 2L and 2K then total output also increase by 100% ie
400. As inputs are again double to 4L+4K, output also double ie 800 units

.This tendency of increasing output equal to increase in input is called constant return
scale It can be further explained with the help of the following figure

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scale It can be further explained with the help of the following figure

fig: labour or capital
in the above figure labour and capital are measured in the X-axis and MP or return is
measured in the Y -axis .MP is constant is with increase in labor and capital .So, CRS
curve is parallel to X-axis

Theory of prosuction Page 2

IRS 8:37 AM

Sunday, October 18, 2020

Increasing return to scale : when the output increase by greater proportion then the
proportion of increase in all the inputs .It is called increasing return to scale . The increasing
return to scale is explained by following table
Total inputs total amount of output Result

200

500 increasing return to scale

1200

in the table , one unit labor and one unit capital produce 200 units of output .As both inputs
are increased by 100 % i.e. 2L and 2K then total output increase by 500 i.e. more than 100%.
As inputs are again double to 4L+4K, output is 1200 units i.e. more than double
.This tendency of increasing output is called increasing return scale

It can be further explained with the help of the following figure

Page 119 fig

in the above figure labour and capital are measured in the X-axis and MP or return is
measured in the Y -axis .MP is increases with increase in labor and capital .So, IRS curve is
upward sloping .
causes of increasing return to scale are
1) Indivisibility of factors
2) fuller utilization of factor
3) Higher degree of specialization
4) dimensional relation
5) Managerial economies
6) technological economies

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6) technological economies

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DRS 8:38 AM

Sunday, October 18, 2020

Decreasing
return to scale : when the output increase is less than the proportion of increase in all
the inputs .It is called decreeing return to scale . The increasing return to scale is
explained by following table
Total inputs total amount of output Result

200

300 decreasing return to scale

500

Milan Adhikari at 11/26/2020 7:25 AM

in the table , one unit labor and one unit capital produce 200 units of output .As both
inputs are increased by 100 % i.e. 2L and 2K then total output increase by 300 i.e. less
than 100%. As inputs are again double to 4L+4K, output is 500 units i.e. less than
double .This tendency of increasing output is called decreasing return scale

It can be further explained with the help of the following figure

in the above figure labour and capital are measured in the X-axis and MP or return is
measured in the Y -axis .MP is decrease with increase in labor and capital .So, DRS curve
is downward sloping .
causes of decreasing return to scale are
1) Entrepreneurship is a fixed factor
2) Limitation of natural resources
3) problems of proper management.

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