Production variable proportion .PPT..///

PRODUCTION INTRODUCTION:
Production is a process of combining various material inputs and
immaterial inputs (plans, know-how) in order to make something for
consumption (output). It is the act of creating an output, a good or
service which has value and contributes to the utility of individuals. The
area of economics that focuses on production is referred to as
production theory, which in many respects is similar to the consumption
(or consumer) theory in economics.
Economic well-being is created in a production process, meaning all
economic activities that aim directly or indirectly to satisfy human wants
and needs .The degree to which the needs are satisﬁed is often accepted
as a measure of economic well-being. In production there are two
features which explain increasing economic well-being. They are
improving quality-price-ratio of goods and services and increasing
incomes from growing and more eﬃcient market production or total
production which help in increasing GDP. The most important forms of
production are:
market production
public production

WHAT IS PRODUCTION ?
In simple way we can say that production is an activity that
transforms input into output
INPU
T
PROCESS OUTPUT

Factors aﬀecting
productivity
☺
Technology
Inputs
C-capital
E-
entrepreneurship
L-land
L- labour

input
s
Outpu
t
proces
s
CAPITA
L
ENTERPRENEURSHI
P
LAN
D
LABOU
R
Product
Or
Service
generate
d

PRODUCTION
FUNCTION
A production function can be an
equation
,table or graph presenting the
maximum amount of production that
a ﬁrm can produce from a given set of
inputs during a period of time

Production
function
The production function can be mathematically
written as:
Q=f(L,K,T……….n)
Where.
Q =
output L
= labour
K =
capital
T = level
of
technolo
gy

USE OF
PRODUCTION
FUNCTION
□ How to obtain maximum output
□Helps the producers to determine whether employing
variable inputs /costs are proﬁtable
□ Highly useful in longrun decisions
□ least cost combination of inputs and to produce an
output

Types of production
function
Type
s
Short –Run
(input kept constant
one input (labour) is
varied)
Long – Run
(varying all
inputs)
Law of
variable
proportion
Law of returns
of scale

Short run production
Function
# one variable
factor #Remaining
constant

long run production
Function
# All input
variable
Q=F(L,C

LAWS OF
PRODUCTION
Law of diminishing returns
or law of variable
proportion
Laws of return to scale

Law of variable
proportion
It states that:
□ if one factor is used more & more , keeping the other factors constant.
□ The total output will increase at an increasing rate in the beginning and
then at diminishing rate and eventually decreases absolutely.

The modern economist have combine three stages of returns to
factor and make a theory of law of variable proportions . The
law of variable proportion is short period theory which explain
that when variable factors then total production change with
diﬀerent proportion.
Meanin
g

o
r
The law because it is applicable in every field of life . It
means in every filed of life the initial stage (increasing
return ) occurs then it changes into diminishing returns
and after a duration in negative returns .The main fields
where it is applicable are discuss below:

Deﬁnatio
n
According to leftwich ,”The law of variable proportion states that if the
input of one resource is increased by equal increments per unit of line
while the inputs of other resources are constant total output will
increase , but beyond some point the resulting output increases will
become smaller and smaller”.

ASSUMPTIONS
:❖ Constant
Technology
❖ Short run
❖ Homogeneous
Factors

Explanatio
n
With reference to the laws of the economists have formulated three
stages which are discussed below.
✔ First stage or ( Income return)
✔ Second stage or (Diminishing
return)
✔ Third stage or ( Negative return )

Unit of land Unit
of
labou
r
Total
productio
n
Averag
e
proﬁt
Margina
l
product
Description
2 1 3 3 3-0=3 Increasing
2 2 7 3.5 7-3=4 Return
2 3 12 4.0 12-7=5 TP^ AP^MP^
2 4 16 4.0 16-12=4 Diminishing
2 5 19 3.8 19-16=3 Returns
2 6 21 3.5 21-19=2 TP^AP_ MP_
2 7 22 3.14 22-21=1 Negative
2 8 22 2.75 22-22=0 Return
2 9 21 2.33 21-22=1 TP_AP_MP_

Three Stages of
production :
STAGE 1 : INCREASING RETURNS
As the production of one factor in the combination of factor is
increased upto a point, the MP of the factor will increase.
Reasons
:
▪ Indivisibility of factors
▪ Quantity of ﬁxed factor
▪ Division of labour
▪ Economies

STAGE 2 : DIMINISHING RETURNS
As the production of one factor in the combination of factor is
increased after a point the average & MP of the factor will
diminishing.
Reasons:
❑ Scarcity of ﬁxed factor
❑ Indivisibility of ﬁxed factor
❑ Lack of perfect substitution of factor of
production

STAGE 3: NEGATIVE
RETURNS
Reasons:
☺ Excessive variable
factor
☺ Ineﬃciency of ﬁxed
factor

Application or Applicable to Agriculture
sector
In order to increasing agriculture production , labour (variable factor)
increased with land (ﬁxed Factor ) increased with land (ﬁxed factor) as
the result of it the marginal returns of variable factor begins to fall .As
a bult of it the law of diminishing results becomes applicable.
Applicable to extractive industries
The law is also applicable to the following extractive
industry:-

1. Mining
industry
In order to get more and more minerals one has to go deep into
the mines, which may increase in the cost of production in the
ﬁrm of wages of labour, expensing on lighting etc. As a result of it
law diminishing becomes applicable.

2.
Building
The law is also applicable to the multi –story buildings . Higher the
building
,larger the proportional expenditure on upper storey is very less as
compared to the ground ﬂoor.

3.
Fisheries
The stock of fish at any given spot of the river or sea is always limited and
to get more fishes the fishermen have to go out into the deep sea. As the
result of it cost of product increases .so the stage of diminishing occurs.

3.Applicable to
industries
In order to increased the manufacturing industry labour and capital
play an important role as compared to land and when labour is increase
with ﬁxed factor (land) then the marginal returns of the variable factor
goes on decreeing after the optimum level of production.

Conclusion
:
In the end we can say that the law of variable
production is applicable in every ﬁeld of life . Where
ﬁxed various factor are used in order to get optimum
production level

Production variable proportion .PPT..///

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