Page 160 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Unit-8: Production Function and Law of Production

period. On the basis of this method, the factors of production or inputs can be classified in the following two Notes
parts—
(i) Fixed Inputs or Factors of Production: The factors of production or fixed input cannot be changed
temporarily. Some examples are—plants, buildings, aministrative services, experienced worker
etc.
(ii) Variable Inputs or Factors of Production: The
factors of production or variable inputs can be The fixed inputs and variable inputs can be
changed temporarily. Some examples are—raw classified by temporarily changed factors
only.
material, workers etc.
The fixed and variable inputs can understand by an example. If a firm publishes 1000 books per day
and it needs to increase the publishing by 2000 books per day, then what would the firm do? Definitely,
it needs more factors. But some factors like building, printing press etc., cannot be changed in a limited
period of time. So to increase the publishing of books, this firm will take help from the variable inputs
like labour, raw material etc. Thus in this example, printing press and buildings are fixed inputs while
labour and raw materials etc. would be variable inputs. It must be known that the fixing of factors and
changing of factors depend upon the time period.

8.3 Time Period

This must be remembered that the fixed or variable inputs depend upon those time period on which the
inputs need to be changed as per change of the quantity of production. The economists classified this
time period in two different parts—
(i) Short Period or Short Run: Short run is defined as that period of time in which at least one or
more than one factor of production or inputs are fixed and others are variable. So the quantity
of production can be increased by the change of variable inputs in short period of time. In other
words, there are both fixed and variable inputs in short period. So if the producer wants to
increase his production in short period, he needs to increase the raw material and worker with
fixed machines and plants as well as machinery. And if he wants to decrease its production
in short period then he just needs to decrease the raw materials as well as the worker. But he
cannot demolish the building or plant; no matter even if, there is no use of these inputs.
(ii) Long Period or Long Run: Long period or long run is defined as that period of time in which
all factors of production or inputs are variable. There are no fixed factors in long run. All factors
are variables. In other words, the meaning of long run is that given period of time when we can
increase or decrease all the factors.

8.4 Concepts of Output or Product

There are three main assumptions of production—(i) Total Product (ii) Average Product (iii) Marginal
Product.
(i) Total Product (TP): Total product of a variable factor is the maximum output produced by
combining a given input of that factor with the fixed factor.

TR = AP × L
or
TP = ΣMP
(Here TP = Total Production; AP = Average Production; L = Variable Factors of Input; MP = Marginal
Production.)

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