class 12 economics Production function very important notes.

 Production function..........short and easy notes for board exam.

1. What is production?

> Production is a process that create utility in goods. According to scientific point of view, human being can neither create nor destroy any goods. Human being can only increase or create the utility in goods. 

2. What do you mean by Total production?

> Total amount of goods and services produced in a given period by using various factors of production, is called Total production.

i.e., TP = AP*L

Whereas, 

AP = average production

L = unit of factors

or, TP = ΣMP

Whereas,

MP = marginal product

3. What do you mean by marginal product?

> Change in Total production due to applying more or less unit of variable factors.

i.e., MP = TPn - TPn-1

4. What do you mean by average product?

> It is per unit production of variable factors.

i.e., AP = IP/L

5. What do you mean by production function?

> It is the relationship between a firm's production and the material factors of production.

i.e., Qx = f(A,B,C,D)

whereas,

Qx = physical production of goods X

A,B,C,D are different factors of production.

Following are its assumptions;

• Production function is related to a definite time period.
• In short run, few factors of production are fixed and others are variable.
• In long run, all inputs of production function become variable.
• There is no change in technical level in short run.

6. What do you mean by variable production?

> When one or more factors are kept constant and units of variable factor are increased, then production first increases, becomes constant and then decreases. According to this law, there are three stages of production;

• Law of increasing return.
• Law of constant return.
• Law of diminishing return.

7. What do you mean by return to scale.

> Returns to scale refers to the behaviour of total output as all inputs are varied in the same proportion. It is a long run concept.

There are three types of Return to scale;

• Increasing returns to scale - Increasing returns to scale occur when K% increase in factors of production increase production more than K%.
• Constant returns to scale - Constant returns to scale occur when K% increase in factors of production cause similar, i.e., K% increase in output.
• Decreasing returns to scale - When on increasing factors of production, production increases at lesser rate or ratio, then it is called decreasing returns to scale

POINTS:

1. When marginal production is zero, Total production is maximum.
2. Return to scale are associated with the law.
3. Short run production function is associated as law of variable proportion.
4. Land, labour and wages are the factors of production.
5. Labour is active factor of production.

THE END