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LONG RUN PRODUCTION FUNCTION PRESENTED BYBYINDU KUMARI MANORANJAN PAUL NALINAKSH TRIPATHI RANJIT KUMAR NAYAK SAURABH KUMAR SONI
What Is Production Function? Production function deals with the maximum output that can be produced produced with a limited and given quantity of inputs.
What is long run production function ?
Long run refers to that time in the future when all inputs are variable inputs. Output can be varied by changing the levels of both L & K and the long run production function is expressed as: Q = f (L, K)
Returns
to scale
Returns
to scale is a factor that is studied in the long run. Returns
to scale show the responsiveness of total product when all the inputs are increased proportionately.
Kinds of
Return
to Scale
Constant returns to scale
Increasing returns to scale
Decreasing returns to scale
RETURN T O SCALE IN A SILICON CHIP FAC T T ORY UNIT OF LABOR
UNIT OF CAPITAL (Rs.¶OOO)
1
100
2
200
3
PERCENTAGE INCREASE IN LABOR AND CAPITAL -
TOTAL PRODUCT (¶00 UNIT)
PERCENTAGE INCREASE IN TOTAL
RETURN TO SCALE
PRODUCT 100
0
INCREASING
100
220
120
INCREASING
300
50
350
59
INCREASING
4
400
33.33
500
42.9
INCREASING
5
500
25
625
25
CONSTANT
6
600
20
750
20
CONSTANT
7
700
16.66
860
14.66
DECREASING
8
800
14.29
940
9.3
DECREASING
9
900
12.5
1000
6.4
DECREASING
Constant Return T o Capital (machine hours)
Scale A
6
30 4 20 2 10 0
5
10
15 Labor (hours)
Increasing Return
T o
Capital (machine hours)
Scale
A
4 3
30 2
20 10
0
5
8
10
Labor (hours)
Example comb combin ina atio tion A B C D E
cap capital tal 1 2 3 4 5
lab labour units of watch tches 15 100 11 100 8 100 6 100 5 100
Characteristics of Curve
Isoquant
T hey hey
It is convex to origin.
It is smooth and continuous.
T wo wo
slope downward to the right.
isoquants do not intersect.
TYPES
OF ISOQUANT
LINEAR ISOQUANT
UT -OUT PUT ISOQUANT INPUT-
KINKED ISOQUANT
SMOOT H CONVEX ISOQUANT
T he he
marginal rate of technical substitutio substitutionn -It is the rate at which an input can
be exchanged for the other input without altering the production level. MRTS !
(K (L
At any given point, it is the absolute value of the slope of the isoquant. -It is decreasing along a given isoquant. isoquant. -
marginal rate of technical substitution
substitution and marginal productivity
here T here
is an important relation between the MRT S and the MP A variation in output can be decomposed as follows Along a given isoquant: isoquant: (Q !
