Your cart is empty.
Practice each question, then open the answer or worked solution.
Explain the concept of a production function.
The production function is defined as the relationship between physical inputs used in production and the corresponding physical output. This shows how many units of inputs produce the maximum output. It can be represented as
Qx = f (L, K)
Where Qx = Total Physical Output
L= Total physical labour employed
K= Total capital employed
What is the total product of input?
It refers to the total volume of goods and services that are produced in a firm with the provided input during a specific time period.
What is the average product of input?
The Average Product of an input is the Total Product divided by the total amount of the variable input used to produce it.
What is the marginal product of input?
The marginal product of an input is the improvement in output that is achieved by using an additional unit of input.
Explain the relationship between the marginal products and the total product of an input.
This can be explained with the help of the law of variable proportions. As per this law, when only one variable factor input is allowed to increase with all other inputs kept constant, the following changes are observed:
1. With an increase in Marginal Product (MP), there is a corresponding increase in Total Product (TP). A convex curve is obtained with the effect till the MP curve is at its maximum.
2. When MP declines but is positive, then TP increases with a decline in rate, giving the total product a concave shape.
3. When MP is at zero, the TP is at maximum
4. When MP becomes negative, the TP falls.
Explain the concepts of the short run and the long run.
The long run is a period of time in which the producer can change all the variables involved in the production, like building, machine etc. The short-run is a period of time in which the producer can only make limited changes in the production process. It is the period in which at least one factor of production is fixed while others can be changed or improved. The examples of short run can be farmer having a fixed piece of land.
What is the law of diminishing marginal product?
According to the law of diminishing marginal product, there will initially be an increase in the total amount of production when one of the factors is increased while keeping the others constant.
Eventually, this strategy would not keep increasing production. For example, think of a factory where the machinery is a factor of production. Increasing the number of machines would initially increase production. But if the company keeps increasing the number of machines without correspondingly hiring new workers to operate them, the productivity will decrease.
What is the law of variable proportions?
The Law of Variable Proportions is also called the Law of Diminishing Returns.
According to the law, when one of the inputs involved in the production is changed while keeping the other inputs constant, there will be a point after which the output per unit of that input will start to decrease. This law is theorised under certain assumptions.
i) The technology should remain the same.
ii) The possibility that the factors of production can be changed within a short period of time.
iii) Some inputs should be kept constant
When does a production function satisfy constant returns to scale?
Constant returns to scale is achieved when the change in the factors of production matches with the changes in the total output. This means that the efforts of the producer to improve production yield appropriate and equivalent returns.
When does a production function satisfy increasing returns to scale?
Increasing returns to scale is achieved when the change in the factors of production yields more than the proportionate changes in the total output. This means that the company has improved its productivity.