The maximum level of output that can be produced with a given amount of input.
Measures
Of Productivity
Total
production (TP): the maximum level of output that
can be produced with a given amount
of input.
Average Production (AP): output produced per unit of input
AP = Q/L
Marginal
Production (MP): the change in total output
produced by the last unit of an
input
Marginal
production of labour = ΔQ / ΔL (i.e. change in the quantity produced to a given change in the labour)
Marginal
production of capital = ΔQ / ΔK (i.e. change
in the quantity produced to a given change in the capital)
Production
Function:
A production function, like any
other function can be expressed and analysed by any one or more of the three
tools namely table, graph and equation. The maximum amounts of output
attainable from various alternative combinations of input factors are given in
the table. The
production function expressed in tabular form is as follows.
The firm has a set of fixed
variables. As long with that it increases the labour force from 1 unit to 10
units. The increase in input factor leads to increase in the output up to an
extent. After that it start declining. Marginal production increases in the
initial period and then it starts declining and it become negative. The firm
should stop increasing labour force if the marginal production is zero- that is
the maximum output that can be derived with the available fixed factors. The 9th labour does not contribute to
any output. In case the firm wants to increase the output beyond 153 units it
has to improve its fixed variable. That means purchase of new machinery or
building is essential. Therefore the firm understands that the maximum output
is 153 units with the given set of input factors.
The graphical representations of the production
function are as shown in the following graph.
The graphical presentations of
the values are shown in the graph. The ‘X” axis denotes the labour and the ‘Y’
axis indicates the total production (TP), average production (AP) and marginal
production (MP). From the given table and graph we can understand all the three
curves in the graph increased in the beginning and the marginal product (MP)
first fell, then the average product (AP) finally total production (TP). The
marginal production curve MP cuts the AP at its highest point. Total production
TP falls when marginal production curve cuts the ‘X’ axis. The law of
diminishing returns states that if increasing quantity of a variable input are
combined with fixed, eventually the marginal product and then average product
will decline.
When
the production function is expressed as an equation it shall be as follows:
Where,
Q = Output in physical units of
good X
Ld = Land
units employed in the production of Q
L
= Labour units employed in the production of Q
K
= Capital units employed in the production of Q
M
= Managerial Units employed in the production of Q
T
= Technology employed in the production of Q
f =
Unspecified function
fi = Partial derivative of Q with
respect to ith input.
This equation assumes that output
is an increasing function of all inputs.
Tags : Managerial Economics - Production Analysis
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