Page 159 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory

Notes Objectives

After studying this unit, the students will be able to:
• Know the Production Function.
• Study the theory of production.

• Know the Postponement of the Law.
• Understand the result of scale.

Introduction

When a factor increases in production while other factors are stable then the ratio of factors gets changed.
Let’s assume that there are two factors of production–Land and Labour. Land is a fixed factor. Labour is
a variable factor. Suppose you have two hectares of land. You grow tomato with the help of one worker.
So the ratio of labour and land would be 1:2. If you increase the worker as 2 then this ratio would be
2:2. Means initially there is two hectares land for a worker and now it is per worker one hectare. Thus if
there is the change of ratio of factors, the rates of quantity of production would change.

8.1 Production Function

The production function states the technical or physical relation between the factors for production and
quantity of products.
As per Watson, “The relation between a firm’s physical
production (output) and the material factors of production
(input) is referred to as production function.” It is essential that you understand the
physical product and the physical inputs
In the words of Ferguson, “A production function is a of the production function reflects the
schedule (or table or mathematical equation) showing the technical relationship.
maximum amount of output that can be produced from any
specified set of inputs, given by the existing technology.”
Here it must be known that when the production function is described as a function relationship between
physical inputs and physical outputs then the concept of production thought as Flow Concept. As a flow
variable production refers to units of output per period of time. For example, if the scale of production
increases from 500 to 550 units, it does not mean that the production was 500 units in previous month and it
would be 550 units in coming month. But this indicates that the scale of production increased by 500 units to
550 units.
The production function can be described statistically as—

Q = ψ (f .....f )
1 m
Q = Production
f - ......f = m (Quantities of m different inputs)
1 m
The production function, as described above, only represents by flow variables. The product and the
input variables are represented by numbers in time period.

8.2 Fixed and Variable Inputs or Factors of Production

A firm used various inputs for its production. To change the production quantity, it needs to change the
inputs too. Some inputs can be changed temporarily. But possibility to change some inputs is in long

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