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Unit-8: Production Function and Law of Production

is the stage of increase level of returns. TP increased with increasing rate of MP from O to J. The MP Notes
decreases in between the units L and K of variable factors. This is the stage of decrease level of returns.
TP decreased with decreasing rate from J to T. When more than K units of variable factors work then the
marginal production gets negative and thus TP is decreased. This is the stage of negative level of returns
as shown in the right side of T point on TP curve. By this TP is declined. This is negative level of returns
as shown in right side of T point of TP curve.

8.12 Significance of the Stage of Production

Do you stop the production in its first stage as a producer?
No. Because by using per extra units as law of variable proportions, the marginal production is always
increasing.
Do you want to get production in the third stage as a producer?
No. Because by using per extra units as law of variable proportions, the total production is getting
decreased (marginal production is negative). In fact, the loss in total production or total income is really
foolish and it is more costly when we put extra units as law of variable proportions.
So we reach in a decision that a producer would want to produce goods on second stage only. In the
technical language, it means that a producer is in equilibrium stage in second level when marginal
production is decreasing but positive.

Give your opinion on the three stages of production.

8.13 Stage of Rational Decision

To get maximum level of profit, a full contestant firm will use its production in the second stage. The
reason behind this is—

However, the ratio proportion is increasing by variable inputs in the first stage, but the fixed factors
are used in their minimum level. So as soon as the production increases, the marginal production also
increases or marginal cost decreases. If support AR is fixed
cost means MR is stable, it means the gap between MC and First and third stage are unimportant in
MR is widening. The widening gap between MC and MR profit view. The main reason is that in
indicates the increased profit (when MR > MC). A rational this situation a firm can never be in a
stable condition.
producer will never stop his production in this profit level.
A rational producer will never produce goods in the third stage because in this stage the total production
is getting low. In the words of Ferguson, “Even if units of the variable inputs are free, a rational
producer would not employ them beyond the point of zero marginal products because their use
entail a reduction in total output.”
In summary, a wise firm will always produce goods in second stage, when diminishing return starts. A
full contestant firm would never produce in first and third stage and will only produce goods in second
stage. The real quantity of production in stage two depends upon the cost of production and the factors
of production. The equilibrium will happen where extra income (MR) and extra cost (MC) are equal.
TP, AP and MP: A Diagrammatic Presentation: The TP, AP and MP curve look flat due to the division
of labour time. The curve AP is going till point H and then falls (but it is positive till TP is positive). MP
highs till point G, gets zero in point I and after that gets negative. When AP curve moves up then MP
curve is more above it; when AP curve drops then MP curve is just below it and when AP curve is at its
maximum point (like point H) then MP = AP.

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