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    The production function shows the maximum output that can be produced from various inputs. Fixed inputs cannot vary in the short run, while variable inputs can change with output. In the long run, all inputs become variable. The law of variable proportions states that initially, adding more of one input increases output at an increasing rate. Eventually, extra inputs yield lower increases in output until a point where more inputs decrease output. This process occurs in three stages: increasing returns, diminishing returns, and negative returns. The relationship between average and marginal product is such that average product rises when marginal product exceeds it, falls when marginal product is lower, and peaks when they are equal.

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    The production function shows the maximum output that can be produced from various inputs. Fixed inputs cannot vary in the short run, while variable inputs can change with output. In the long run, all inputs become variable. The law of variable proportions states that initially, adding more of one input increases output at an increasing rate. Eventually, extra inputs yield lower increases in output until a point where more inputs decrease output. This process occurs in three stages: increasing returns, diminishing returns, and negative returns. The relationship between average and marginal product is such that average product rises when marginal product exceeds it, falls when marginal product is lower, and peaks when they are equal.

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    11 views2 pages

    Eco Answers DG

    Uploaded by

    Harley Quinn
    The production function shows the maximum output that can be produced from various inputs. Fixed inputs cannot vary in the short run, while variable inputs can change with output. In the long run, all inputs become variable. The law of variable proportions states that initially, adding more of one input increases output at an increasing rate. Eventually, extra inputs yield lower increases in output until a point where more inputs decrease output. This process occurs in three stages: increasing returns, diminishing returns, and negative returns. The relationship between average and marginal product is such that average product rises when marginal product exceeds it, falls when marginal product is lower, and peaks when they are equal.

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    of 2

    1. Explain the concept of production function.

    Distinguish between fixed inputs and variable inputs.

    Is the distinction between the two relevant in the long run?

    1st part

    Production function is the functional relationship between inputs and output of a firm. Algebraically,
    production function can be written as,

    Q= f (L, K, M)

    Where Q stands for the quantity of output, L, K and M stands for the quantities of labour, capital and
    raw materials respectively.

    The production function shows the maximum quantity of output that can be produced with any given
    quantity of inputs.

    2nd part

    Fixed inputs are those inputs which cannot be changed in the short run and cannot vary with the
    output. For example, capital, land.

    Variable inputs are those inputs that can vary with the output. For example, labour, raw materials.

    3rd part

    No, the distinction between fixed inputs and variable inputs is not relevant in the long run because,
    fixed inputs become variable input in the long run.

    2. State the law of variable proportions.

    Discuss different stages of law of variable proportions / Discuss 3 stages of production.

    1st part

    The law of variable proportion states that during any production process with a given state of
    technology, as one input is increased, keeping the amount of other inputs fixed, output will first
    increase, but after reaching a particular point, the additional output will fall if same amount of extra
    input is employed.

    This law is applicable only in the short run.

    2nd part

    The behavior of output under law of variable proportion can be divided into 3 stages. We have
    explained these 3 stages of production with the help of graphical illustration.

    [Draw the graph here]


    Stage 1: In this stage, Total product (TP) rises at an increasing rate up to point A in the above
    diagram, and the slope of the TP curve (i.e., MP) also increases. Thus, Marginal product (MP) will
    also rise up to A. At point A, the slope of the TP curve is maximum and so MP is maximum. Point A
    is known as the point of inflexion. After A, TP increases but at a decreasing rate. It means, MP is
    positive but falling. Throughout the first stage, Average product (AP) is rising and becomes maximum
    at point B in our above diagram. At point B, MP becomes equal to AP. Stage 1 is known as the stage
    of increasing returns. This stage ends at point B.

    Stage 2: In this stage, TP continues to increase but at a diminishing rate until it reaches its maximum
    point C in our diagram. In this stage, both AP and MP are falling. At point C, the slope of TP is zero,
    hence MP is zero. This stage is known as the stage of diminishing returns. This stage ends at point C.

    Stage 3: In this stage, TP declines as more labour is employed. So, MP is negative. AP is positive but
    decreases sharply. This stage is known as the stage of negative returns since MP is negative in this
    stage.

    3. State the relationship between AP and MP

    The relationship between AP and MP is shown in the figure.

    [Draw the graph related to AP and MP here.]

    1. When MP > AP, AP is rising.


    2. When MP < AP , AP is falling.
    3. When MP = AP, AP is maximum.

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