5

PRODUCTION FUNCTION
LEARNING OBJECTIVES
5.1 INTRODUCTION

52 PRODUCTION FUNCTION
5.3 SHORT RUN AND LONG RUN
54 VARIABLE FACTORS AND FIXED FACTORS
5.5 CONCEPT OF PRODUCT
5.6 RETURNS TO A FACTOR: LAW OF VARIABLE
5.7 LAWOF DIMINISHING RETURNS PROPORTIONS
5.8 RELATIONSHIP BETWEEN TP AND MP
5.9 RELATIONSHIP BETWEEN AP AND MP
5.10 SOLVED PRACTICALS

5.1 INTRODUCTION
We that both consumers and
are aware
producers are needed for smooth functioning of
an
economy. In the previous three chapters, we focused our attention on the behaviour of
consumers. Now, we will
pay attention towards the producers.
A producer makes use of various inputs for production of goods and services. Production
is an
important economic activity as it enhances the utility of the product by changing it in
the form needed by the consumers. For
example, leather is of less use in its raw form until it is
transformed into some desirable product like shoes, bags,
jackets etc. The term prod1uction, in
economics, covers a nmuch wider range of activities, than in its everyday use.
lo an
economist, production means any process that converts a commodity or commodities into
a

10
different commodity. Production refers to transformation of inputs into output. Forexample:
manufacture shoes (output), we need various inputs like leather, nails, land, labour, capital,
services of
entrepreneur
etc.
5.2 PRODUCTION FUNCTION
exists some relationship between inputs and output of a firm. In Economics, such a
dionship is known as production function. Production function is an expression of the
ecinological relation between physical inputs and output of a goo.
oymbolically: 0, fli1, i igr....
=

ere:O= Output ofcommodity x; f= Functional relationship; i, i, ..., = Inputs needed for O

5.1
 Introductory Mi
5.2

Example of Production function

economics
with the hetp of two inputs, say labour c
Suppose a firm is manutacturing chairs (L) and capital
as: Ochairsf(L, K)
( ) . Then, production can
function bewritten
be produced with # .
chairs (OChairs?, wliich can e given capit
Production function defines the maximum as: 250
a n t labour inputs. If production
function is expressed (7L,
=
:2K). It mea
7 units of
maximum of 250 chairs.
abour and 2 units of capital can produce
More about Production Function
1. function
maximum
specifies either the output that can be proda.
Theproduction
iven inputs o r the minimum quantityy inputs
of needed to produce a . outpthe
given levelof
Production function establishes a relation between inputs and output, which is toe

in nature.
technical
Proouction tunction is not economical in nature as we do not considerthe value ofinputs and output
ut.
3. Production function is always defined with respect to a given technology. If there
is an
improvement in the technique of production, then increased output can be obtainedwi
with
the same physical inp
4. The production function includes only the technically efficient methods of productionn -
as
no rational entrepreneur will use inefficient methods.

5.3 SHORT RUN AND LONG RUN

The functional relationship between change in output due to change in inputs is studied intwo
phases: Short run and Long run time periods.

Short Run
Short run refers to a period in which output can be changed by changing only variable factors
In the short run, fixed inputs like plant, machinery, building, etc. cannot be changed. It means,
production can be raised by increasing variable factors, but till the extent of capacity of fixed
factors.
For example, if a producer wants to increase output in the short run, then this objectivecanbe
achieved by using more of raw materials and increasing number of workers with the existing
factory building, plant and equipment. One cannot
additional plant and equipment. So, in the short
immediately expand factory building, nstal
run, some factors are fixed and some are varlu
and fixed factors cannot be
changed during such a short span of time.
Long Run
Long run refers to a period in which output can be changed by changing all factors of prouie
Long run is a period, that is long enough for the firm to adjust all its inputs according to cd
in the conditions. In the long run, firm can ues of
change its factory size, switch to new teC
production, purchase new machinery, etc.

Important Points about Short run and Long run

.The distinction between short run and long run does and
not refer to a calendarPe
not based on a fixed time span.
 5.3
P r o d u c t i o nF u n c t i o n

eriod is rather afunctional concept, which depends on production IrO

conditions. It varies
short runn
be
firmtofirm and industry
to industry. For
example, a period of 10 years may
period for a
for a steel industry, while, a period of one year may be a long-run
p e r i o d

wheat producer.

between Short Run and Long Run

Difference

Basis
Short run Long run
Short run refers to a period in which Long run refers to: period in which
Meaning
output can be changed by changing output can be changed by changing al
only variable factors. factors of production.
Classification
Factors are classified as variable and All factors are variable in the long run.
fixed factor in the short run.

Price
In the short run, demand is more active Inthe long run, both demand and supply
determination
in price determination as supply cannot play equal role in price determination as
be increased immediately with increase both can be increased.
in demand.

E4 VARIABLE FACTORS AND FIXED FACTORS

Droduction is the result of combined efforts of the factors of production. These factors are

hroadly classified as: (i) Variable Factors; (ii) Fixed Factors.

Variable Factors
Variable Factors refer to those factors, which can be changed in the short run. For example, raw
material, casual labour, power, fuel, etc.

Variable factors vary directly with the level of output. As output increases, requirement for
variable factors also rises and vice-versa. It must be noted that variable factors are not required in
case ofzero output.

Fixed Factors
Fixed factors refer to thosefactors, which cannot be changed in the short run. For erample, plant
and machinery, building, land, etc.
The quantity of fixed factors remain same in the short run irrespective of level of output, i.e.
they do not change, whether the level of output rises, falls or becomes zero.

Ditference between Variable Factors and Fixed Factors

Basis Variable factors Fixed factors
Meaning Variable factors referto those factors, Fixed factors refer to those factors
which can be changed in the short which cannot be changed in the
run. short run.
Relation with They vary directly with output. They do not vary directly with output.
Output
Example Haw material, casual labour, power, | Building, plant and machinery,
| fuel, etc. permanent staff, etc.

al4uOd
 oductory Micro
5.4

ExampleFixed and Variable Factors

in Short and Long run
with the help of a
icroeconomics
Shyam
manufactures pens
fan machi e (fixed facto
Example:Suppose, of the plant is 2,000 pens. The variable
capacity
However, due to iow o d to r ) .
produce
maximum
The raw material.
and T00 Kg t
10 labours demaneceemand in the
and 30
are:
2000 pens with 4 labours
bours and 30 kg of
manutacturing only b00 pens
Shyam is raw
marke.
further, Shyam geis order
an additional
pens.
of 90 material.
Short Run: Suppose
needs to increase only the variable factors (i.e. labor
d ra
Now, to fu
this order. he material
total production
600+ 900 1,500
= is still within the maximum
pens of erial) as
capacity plant.
order of 900 pens is termed as short rs. Theof
period, needed to complete
the
The period.The
in the fixed factors. The
is too short to c a u s e any change
of
short-run
increased only to the extent
of avallable capacity of fixed factors.
oduction
on Cancan
be
ordersize is of 1,800 pens (instead of 900
Long Run: However, if the
Denci
production needed will increase to 2,400 pens. But, tne maximum capacity of nian

2.000 pens. Now, Shyam needs to have one more plant in addition to more labor
material. The period, needed to complete the order of 1,300 pens is termed as lonn raw
run.
In the long run, distinction between fixed and variable factors disappears and
all
factors (plant, labour and raw mate rial) are variable.

Types of Production Function

The distinction between fixed and variable factors helps us to study the two types of production
runction:
1. Short Run Production Function (Variable Proportion Type): Short run
production function
refers to a situation when increased
outputis by changing only one input while keeping
other inputs unchanged. As there is
change in variable input only, the ratio between diferet
inputs tends to change at different levels of output. This relationship is explained by 'Law of
Variable Proportions' (discussed in Section
5.6).
2. Long Run Production Function (Constant
refers to a situation when
Proportion Type): Long run production functou
output increased by increasing all the inputs simultaneous ly
is
and in the same
proportion. As all inputs are variable in the long run, the ratio between uy
inputs tends to remain the same at different levels of output. This relationship is expldued br
the 'Law of Returns to Scale'
(discussed in Power Booster Section).
Before
proceed
we
Law to
of Variable
Proportions and Law of Returns to
s first
discuss the various
concepts of 'Product'. Scale, le
5.5 CONCEPT OF
PRODUCT
Product or
output refers to the volume uring"
specified period of time. of goods produced bu a firm or an inasy
The concept of
product can be looked at from three
) Total Product different angles:
(ii) Marginal Product
(ii) Average Product
Production F u n c t i o n
5.5
Total Product (TP)
ahal product refers to total quantity of goods produced by a firm during a given perioa of

time with given number of inputs.

For example, ;if 10 labours produce 60 kg of rice, then total product is 60 kg.
short-run, ia firm can expand TP by increasing only the variable factors. However, in the
short-run,
In the
n , TP%
long-run, TP can be raised by increasing both fixed and variable factors.

TAtal Product is also known as 'Total Physical Product (TPP)' or "Total Return'or Total Output'.

Average Product (AP)

Average product refers to output per unit of oariable input.
Eor example, if total product (TP) is 60 kg of rice, produced by 10 labours (variable input), then
average product will be 60 + 10 = 6 kg.
AP is obtained by dividing TP by units of variable factor.

Average Product (AP) = - Total Product (TP)

Units of Variable Factor (n)
TP in terms of AP will be:
TP =APx Units of Variable Factor

Average Product is also known as Average Physical Product (APP) or 'Average Return'

Marginal Product (MP)

Marginal product refers to addition to total product, when one more unit of variable factor
is employed.

MP TP- TPn -1
Where,
MP= Marginal product of nh unit of variable factor;

TP =
Total product of n factor;
units of variable

TP-1 Total product of (n 1) units of variable factor;

-

n = number of units of variable factor.

For example, If 10 labours make 60 kg of rice and 11 labours make 67 kg of rice, then MP of 11th
labour will be:
MP11 =
TP11- TP10
MP1 67 -60 = 7 kg
ginal Product (MP) is also known as 'Marginal Physical Product (MPP)' or 'Marginal Return.

One More way to Calculate MP

We However,
EKnow, MP is the change in TP when one more unit of variable factor employed.
is

unit, then MP be calculated as:

Cnange in variable factor is greater than one can
 Introductor
in Total
Product ATP
Microecono
5.6 Change
Variable Factor An
of
MP in units
Change
5 labours produce90 units, then MP will be.
units
and 5
b0
TP of2 bours
produce labours
labours
2 labours-
Suppose TTof 5
5 labours-2 labours

90-60 0 10 units
M -2
of MP product.
summation
the s u m of marginal
th
TP is be
calculated as

'rduct c a n also
+
. . ... MPn
Total
T MP, + MP'2 + MP'3
It means,
TP MP
VARIABLE PROPORTIONS
LAW OF
RETURNS TO A
FACTOR:
increase in the total product
(return) when onlh
variable and allfuctothe
ors
5.6
to the resultant
Returs to a
factor refers when o n e input isS yariahlo
In the short run,
mcrezsei. keeping
all otherfactorsfixed. the Law of VariablePronn
tived, the firm's production
function exhibits ortions
inputs are one of the
most important laws of produet.chion. I
or LVP is
Law of Variable Proportions due to a change in only one variable fs to
of change in output
shows the nature of rate
of production.
'Lauw of Returns or Law of Returns to Fart
Proportions is also known
as
Law of Variable
or Returns to Variable Factor'.

Statement of Law of Variable Proportions

(LVP) states that as we increase quantity of only one ipst
Lau of Variable Proportions (TP) initially increases at an increasingrate,then
at
keeping other inputs fixed, total product
a decreasingrateand finally at a negative rate.
the changes in TP and MP can be classified into
According to the Law of Variable Proportions,
following three Phases:
Phase : TP rises at increasing rate.
MP increases.
Phase 1: TP rises at decreasing rate.
MP decreases and is positive.
Phase l: TP falls.
MP becomes negative.

Assumptions of Law of Variable Proportions

t operates in short run, as factors are classified as variable and fixed factor
2. The law
applies to all fixed factors including land; e mbined

3. Under Law of Variable

Proportions, different units of variable factor cal
with fixed factor;
4. This law
applies to the field of production only;
5. The effect of change in
output due to change in variable factor easily
6. It is assumed that, factors of can otherbeyom

a certain limit;
production become imperfect substitutes o
P r o d u c t i o nF u n c t i o n

technology is assumed to be constant 5.7

state of
7.
The

ssumed that all variabl factors are

during the operation of this law;
8. It equally efficient.
the law with the
L e t u s n o W
understand

1 acre of land
help of an Example
Suppose, a farmer has (fixed factor) on which he
with the help
of l.labour
(variable factor). When he wants to increase the production
increasing rate, then employed
w h e a t

of
labour, in
reased at an
itially output incre
at
more and more units of

rate. This behaviour of output is shown in Table 5.1. decreasing

a
rate and
a ne
finally, at
Table 5.1: Law
of Variable Proportions
F i x e dF a c t o r Variable Factor TP MP
m
(Labour) (units) Phase
(Landin
acres)
1 10
(units)
1 10
2 30 20 Phase I:
Increasing Returns to a Factor
3 45 15
4 52 7 Phase I!:
5 52 Diminishing Returns to a Factor
0
48 4 Phase ll: Negative Returns to a Factor
r ratio keeps changing: It must be noted that
on
production is carried out under conditions of
ariable Proportions, I.e. proportion between fixed and variable factor changes with every additional
rahle factor. In Table 5.1, the ratio between land and labour changes from
a 1:1 to 1:2, then to 1:3 and
so on, with addition of more and more units of labour

Law of Variable
Proportions
Phase l (Between O to Q) TP
60 M (TP is Maximum) increases at an increasing rate
501 Point and MP also increases.
ofInflexion TP WImp
401 ' Phase ll (Between Q to M) TP
30 increases at decreasing rate
and MP falls. This phase ends
20 UMP when MP becomes zero and TP
NmATP reaches its maximum point.
10
X .Phasell (Beyond point M)
2 345 Units of Variable factor starts decreasing and MP not
TP
only falls, but also becomes
Phase Phase ll Phase ll negative.
0-
50 Point of Inflexion (Point Q)
Point 'Q' is known as point of
0 inflexion as curvature of TP
curve changes at this point.
30 MP is
Maximum
20
10
S (MP 0)
X
o 1 2 3 4
Units ofVariable factor
MP
Fig.5.1
 ductory Aicroeconomics
5.8 the labour on th.
when farmer increases same piece of
of
Table 5.1 and Fig. 5.1, finPece
As seenin
then, initially TP rises at an increasing
rate, then at a decreasing
in three
rate and
phases:
it inally falls.land,
relation between input
and output is
discussed
The
resulting an increasing rate): In # .
(1P 1ncreases at
to the total ouhn.. first phase
Increasing Returns to a Factor
Phase I: more and more
variable factor adds Itrmeans,
every additional
rate and MP of each variablefactor rises.
TP increases at an increasing
of variable input is too small as compared to
ac
It happens because initially quantity
the fixed input. As production fixed input, which
starts, there is efficient use of the fixed inw.
due to division of labour.
raises the productivity of variable input

As seen in given schedule and diagram, one labour produces 10 units, ile two
labours produce 30 units. It implies, TP increases at increasing rate (till pointt'Q
and MP rises till it reaches its maximum point "P, which marks the end of 6
first
phase.
Phase Il: Diminishing Returns to a Factor (TP increases at diminishing rate): In the second
phase, every additional variable factor adds lesser and lesser amount of
output. It
means, TP increases at a
diminishing rate and MP falls with increase in variable factor,
That is why, this phase is known as diminishing returns to a factor.
It
happens because after a level of output, pressure on fixed input leads to fall
in
productivity of the variable input.
The second
phase ends at point 'S', when MP is zero and TP is maximum
at 52 units. (point 'M')
2nmd phase is very crucial as a
rational producer will
phase because TP is maximum and MP of each always aim to produce in this
variable factor is
Phase III:
Negative Returns to a Factor: In the third positive.
the phase (starting from 6 units of labour),
employment of additional variable factor causes TP to decline. MP
negative. Therefore, this phase is known as now becomes
.It happens negative returns to a factor.
because amount of-variable input
the fixed
input which leads.to decline in TP. becomes too large in comparison to
In Fig 5.1, the third
Curve.
phase starts after point 'S' on MP
curve and point 'M'
MP of each variable on TP
factor is
choose to negative in the 3" phase. So, no firm
operate
in this
phase. would
Phase of Operation deliberately
A rational
producer will always seek to operate in Phase ll of
.In Phase I, Law of
employment of Variable
variable tactor Proportions.
more every additional unit
output i.e.
marginal product increases. It of
production is increased with more units means, there is gives more and
of variable scope tor more
factor. profits, if
Production Function

5.9
. Tn Phase Il, marginal product of each variable factor is
out on the ground ot technical negative. So, this phase is rulea
the third phase. inefficiency and a rational producer will never produce in
This bringsuste
theaconelusion that a producer will
and MP of each variable facter is-positive aim to operate in Phase II, as TP is maximum
Reasons for Law of Variable Proportions
Tho various reasons for 3
phases of Law of Variable
Proportions are:
Reasons for Increasing keturns to a Factor
(Phase I)
There are three important reasons for the
operation of increasing returns to a factor:
1. Better Utilization of the Fixed Factor:
In the first
phase,
land) is too large, whereas variable factors are too few.the supply.of the fixed factor (say,
Ser the fixed factor is not fully
utilised. When-variable factors are increased and combined with fixed factor, then fixed
factor is.better utilised and output increases at an increasing rate.
2. Increased Efficiency of Variable Factor: When variable factors
are increased and combined
with the fixed factor, then former is utilised in a
more efficient manner. At the same
there is greater cooperation and time,
high degree specialization between different units of
of
the variable factor.
3. Indivisibility of Fixed Factor: Generally, the fixed factors which are combined with
variable factors are indivisible. Such factors cannot be divided into
smaller units. Once an
investment is made in an indivisible fixed factor, then addition of more
and more units
of variable factor, improves the utilisation of fixed factor.
The increasing returns
apply as
longas optimum level-efeombination between variable and fixed factor is achieved.
Reasons for Diminishing Returns to a Factor (Phase II))
The main reasons for occurrence of
diminishing fetuRS to a factor are:
1. Optimum Combination of Factors: Among the different combinations between variable and
fixed factor, there is one optimüm combination, at which total product (TP) is maximum.
After making the
optimum use of fixed factor, the marginal return of variable factor begins
to diminish. For example, if a machinery (ixed factor) is at its optimum use, when 4 labours
are employed, then addition of one more labour will increase TP by very less amount and
MP will start
diminishing.
mperfect Substitutes: Diminishing returns to a factor occurs because fived and variable
actors are imperfect substitutes of one another. There is a limit to the extent of which one
actor of production can be substituted for another. For example, labour can be substituted
place of capital or capital can be substituted in place of labour till a particular limit. But,

yond the optimum limit, they become imperfect substitutes of one another, which leads
to diminishing returns.

easons for Negative Returns to a Factor (Phase ll)

The main
reasons for occurrence of negative returns to a factor are:

* n t a t i o n of Fixed Factor: The negative returns to a factor apply because some factors ot

are of fixed nature, which cannot be increased with increase in variable

factor
PrOduction
in the
short run.
 Introduct Microeeconomics
5.10 Factor: When variahi.
factor becomes
Fixed
Variable and
betwecn
then they obstruct each ot er.
Coordination
2. Poor fixed factor, It
too excessive
in relation to
fixed factor. As a result, total out
leads to
total output falls
between variable and por
coordination
and marginal product
becomes negative. instead
of
rising With continuous increaco .
Variable Factor: ease in variable
3. Decrease in Efficiency of diminicablefa
the advantages of specialization
and of
ion of
division labour start
labour
which 1s another reason
start
diminishing. factor
for the
It res
neoat
resalts
of variable factor,
in inefficiencies
eventually set in.
refurns
another tamoUs law, known as Law of Diminichi.
Law of Variable Proportions
is an extension of

RETURNS
5.7 LAW OF DIMINISHING
returns states that when more and more units of a variahlo t
Law of diminishing factor an
employed uwith a fixed factor,
then marginal product of the variable factor must fall t meams
It
that marginal returns diminish when proportion between variable and fixed factors in
creases
beyond point.a This law is also known as Law of Diminishing Marginal Product.
Let us understand this with Table 5.2 and Fig 5.2.
Table 5.2: Law of Diminishing Returns
MP Law of Diminishing Returns
Fixed factor Variable TP
(Land) factor (in units) (in units)
(in acres) (labour) 20
1 12 12
16
22 10
3 30 3 12

1 4 36
1 5 40 4
MP
As seen in Table 5.2 and Fig. 5.2, MP falls when more and X
more units of variable factor (labour) are employed with the i 2 3 4 5
Units of Variable factor
fixed factor (land). This law considers only the falling phases Fig. 5.2
of MP and ignores the phase of increasing MP.

LVPis an extension to Law oftDiminishing Returns as it also considers the phaseofrising MPin aditeon
to falling MP. The common element between both the
laws is that MP is bound to decrease soone
later with increase in units of variable factor.

In the short run, a firm can change the weve.

output by changing the quantity of variable factois O
n the long run, all the factors factors
become variable, i.e. the distinction between fixed and
disappears. The resultant change in output due to change in all factor vaia w o
inputs is studied unu
Returns to Scale', discussed in the Power Booster
Section.
5.8 RELATIONSHIP BETWEEN TP AND MP
The relationship between TP and MP offollowi
can be better understood with thne
ie
schedule and diagranm:
Production Function 5.11

Table 5.3: Relationship between TP and MP

Fixed factor (Land) Variable factor TP MP

(in acres) (labour) (in units) (units) (units)

10 10
2 30 20
3 45 15
4 52
52
6 48

The relationship between TP and MP can be summarised as under:

1. As long as TP increases at increasing rate (till point
Relationship Between
P), MP also increases. TP and MP
2. When TP increases at diminishing rate, MP 60
M (TP is Maximum)
decreases. It starts happening
when 3 units of 50
labour are employed and continues till 5 units of TP

variable factor. 30
3. When TP reaches its maximum point (point M), 20
MP becomes zero (point N), i.e. at 5th unit of 10
N (MP is Zero)
variable factor. X
1 2 3 4
4. When TP starts decreasing, MP becomes negative, Units of Variable factor M
i.e. from 6th unit of variable factor. Fig.5.3

5.9 RELATIONSHIP BETWEEN AP AND MP

The relationship between AP and MP is discussed through Table 5.4 and Fig. 5.4:

Table 5.4: Relationship between AP and MP

Fixed factor (Land) Units of Variable AP MP

(in acres) factor (labour) (units) (units)
1

1 1 10 10

1 2 15 20

3 15 15

1 4 13

1 5 10.40
- 4
1 6 8
5.12
introd Jctory Micro
The relationship can be summarised as under:
Relationship
AP and E
onorric
1. As long as MP is more than AP, AP rises, i.e. up to 2nd
Between
MP
unit of variable factor. 25
2. When MP is equal AP, AP is
to at its maximum, i.e. at 20
3 unit of variable factor.
3. When MP is less than AP, AP falls (from 4th unit of10
variable factor).
5 AP
4. Thereafter, both AP and MP fall, but MP becomes
negative, whereas, AP remains positive. MP falls at a
taster rate in
t123
Units of Variable 5 6
comparison to fall in AP. factor MP
Fig.5.4
It must be noted that both AP and MP are
units,
derived from TP. AP is calculated on
whereas,MP is based on the
additional unit only. So, it is the MP which the basis of al
pulls the the AP up or dee
5.10 SOLVED PRACTICALS down.

Important Formulae at Glance a

1. TP Units of variable
2. AP
factorx AP
TP Units of variable MP
3. MP TPn-TPn-1
factor;

Practicals
TP, and MP on AP
Example 1. Calculate Average Product
(AP) and Marginal Product
Variable Factors (MP):
2 3
Total Product (TP) 4 5
20 28
Solution: 28 25

Variable Factors TP (in units) AP (in units)

(VF) TP VF =AP MP (in units)
TP-TPn-1= MP,
8
8+1 8 8-0 8
20
3 202 10 20-8 12
28 28 3 9.33
4
28 28 20= 8
5
25
28+4 7 28-28 =F
25 5 5 25-28 =-3
Example 2. Calculate AP and MP from
the
|Land following particulars:
Labour
2
11
11111
3
TP (units) 20 50 90
4 5 6
7
8 9
120 140 150 150 140 120
 Production Function
5.13
Solution:

Land Labour TP (in units) AP (in units) MP (in units)

AP TP+ Labour MP TP-TPn-1
1
20 20
2 20
50 25
3 30
90 30
4
40
120 30
5 30
140 28 20
150 25
7 10
150 21.42
8 140
1
17.50 10
9 120 13.33 -20
Example 3. Calculate TP and AP:

Variable Factor 1 2 3 4 5 6 7
MP(in units) 24 20 16 12 8 O 8
Solution:
Variable Factor MP (in units) TP (in units) AP (in uits)
(VF) TP= MP TP VF= AP
24 24+0 = 24 24 1 = 24
2 20 24 +20 44 44 2 22
3 16 44 + 16 = 60 603 20
12 60+12 =72 724 18
5 8 72+8 80 805 1 6
6 0 80+0 = 80
80 6 13.33
7 -8 80-8 = 72
72 7 10.28
Example 4. Find out the values of TP and MP:
VariableFactor 2 3 4 5
AP (in units) 8 10 8 6
Solution:
Variable Factor AP (in units) TP (in units) MP (in units)
(VF) TP AP x VF MP= TP,- TPn-1
1 8 8 8
2 10 20 12
3 8 24 4
A 24
5 4 20 4
 Introdu tory Microecon
5.14

Example 5. Find out

the missing
values from
the

3
following table:
4 5 6
eCOnornt
7
Variable Factor 0 1 25
TP(in units)
5
AP (in units) 5 0
8 4
MP (in units)

Solution: MP (in units)

TP (in units) AP (in units)
Variable Factor
(VF) TP MP
AP TP+ VF
0
MPTPn-TPn-1
0 0
5 5 5
1
13 6.50
2
17 5.67 4
3
25 6.25 8
4

5 30
6 30 5
7 26 3.71 -4

Example 6. Complete the following table: CBSE, Delhi 2013 (D

Units of Labour Average Product Marginal Product
(Units) (Units) (Units)
8
2 10
3 10
9
5
6 7
Solution:
Units of Labour TP (in units) AP (in units)
Variable Factor
(VF) MP (in units)
TP MP AP TP VF MPTP-TPn-1
1 8 8 8
2
20 10 12
3 30 10 10
4 36 9 6
5 40 8 4
42 2

Practicals on Law of Variable

Example 7.
Identify the different output levels, which Proportions t h eoperation

of the Law of Variable mark the three phases

Proportions, from the following table:
Units of variable
- factor 2 3 4
5
TP (in units) 20
8 20 28 28
Production Function

Solution: 5.15

Variable Factors TP (in unts)

(VF) MP (in units)
(TP) Phase
0 MP=TPn-TP
8 1st (Increasing
2 8
20 returns to a
12
3
28 factor)
4 2nd (Diminishing
28
5
20 returns to a factoor)
-8 3rd (Negative
returns to a factor)
eample Calculate the MP of variable factor
8.
and indicate the various
ariable Proportions from the following schedule: phases of Law of
Units of variable factor
2 3 4
TP (in units) 0
6
50 110 150 180 180 150
Solution:
Variable Factors TP (in units) MP (in urnits)
(VF) (TP) Phase
MP=TPn-TPn-1
1st (Increasing
50 50
2 returns to a
110 60 factor)
3 150 40 2nd (Diminishing
180 30 returns to
5 180
a factoor)
6 150 -30 3rd (Negative
returns to afactor)

Example 9. Identify different phases of the Law of Variable

Proportions from the following
schedule. Give reasons for your answer. CBSE, Delhi Compi. 2006 (1))
Variable Input (Units) Total Physical Product (Units)
1 4

2 9
3 13
15
5 12
Solution
Variable Input Total Physical Marginal Physical Phase
(Units) Product or TPP Product or MPP (Units)
(Units) MPP TPP,- TPPn-1
4 4 1st Phase (IRF)
2 9 5
2nd Phase (DRF)
3 13
4 15 2
-3 3rd Phase (NRF)
5 12
 5.16
Introductory Microecon
Reason behind each Phase
1st Phase (IRF or Increasing returns to a
onomics
factor): TP increases at an increasing rate and MP
2nd Phase (DRF or Diminishing returns to a factor): TP increases at decreasing rate andialso increases.
l

phase ends when MP becomes zero and TP reaches its maximum point. MP falls.This
3Td Phase (NRF or Negative returns to a factor): TP starts decreasing and MP not
only fall
becomes negative. alls, but also
Example 10. Identify the three phases of the Law of Variable
and also
Proportions from the folle.
give reason behind each phase.
ICBSE, All India 2007wing
Units of Total Physical Product (D
Variable Input
(Units)
10
2 22
3 30
4 35
5 30
Solution:
Variable input Total Physical
(Units) Marginal Physical Phase
Product or TPP Product or MPP (Units)
(Units)
10
MPP,=TPP-TPP-1
10
2 22
12
1st Phase (IRF)
3 30
4 35 2nd Phase (DRF)
5
5 30 -5 3rd Phase (NRF)
Reason behind each Phase
1st Phase (IRF or Increasing returns to a
increases. factor): TP increases at an
increasing rate and MP aso
200 Phase
(DRF or Diminishing returns to
a factor): TP
increases at decreasing rate and MP falls. I nis
phase ends when MP becomes zero
and TP reaches its
3 r Phase (NRF or maximum point.
Negative returns to a factor): TP starts
becomes negative. decreasing and MP not only falls, but aialso
 Production Function

5.17
REVISION OF KEY POINTS
transformation of inputs into output.
roduction refers to
dGtion function refers to the functional
of technology. relationship between inputs and output
for a given state
art run
Shor refers to a period in which
output can be
changed by changing only variable factors.
ang run refers to a period in which
output can be changed
ahle factors refer to those factors, which can be by changing all factors of
production.
Cived factors refer to those factors, which changed in the short run.
hart Run Production Function refers to cannot
Short
be
a situation
changed in the short run.
when output is increased
input while keeping other inputs unchanged. by charnging only one
Lana Run Production Function refers to a situation
when output is
inputs simultaneously and in the same
proportion.
increased by increasing all the
Total Product refers to total quantity of
given number of inputs. goods produced by a firm during a given period of time with
Average Product refers to output per unit of variable
input.
Marginal Product refers to addition to total product, when one more unit of variable factor is
MP TPnTPn-1 employed.
Law of Variable Proportions states that as we increase quantity of
fixed, total product initially increases at an
only one input keeping other inputs
negative rate. increasing rate then at a decreasing rate and
finally at a
Three Phases of Law of Variable Proportions
(a) Increasing Returns to a Factor: TP increases at an
increasing rate and MP increases;
(D) Diminishing Returns to a Factor: TP increases at a
diminishing rate and MP falls, but remains positive;
(c) Negative Returns to a Factor: TP falls and MP becomes
negative.
Law of Diminishing Returns states that
when more and more units of a variable factor
with a fixed factor, then
marginal product
of the factor must fall.
are employed
Relationship between TP and MP
a) When TP increases at an increasing rate, MP
increases;
b) When TP increases at a diminishing rate, MP starts
decreasing;
(c) When TP is maximum, MP is zero;
d) When TP decreases, MP is
negative.
Relationship between AP and MP
(a) When MP> AP, AP increases;
(6) When MP
AP, AP is constant and at its maximum point;
=

(c) When MP< AP, AP falls;

0) MP becomes
negative whereas AP remains positive.

Synonyms
Total Product
or Similar Terms of this
Chapter
Total Physical Product (TPP)
Total Return
Total Output
Average Product
Average Physical Product (APP)
Average Return
 troductory croeconomics
5.18 Product (MPP)
Marginal Physical
Marginal Return
Marginal Product (MP)
Marginal Product
Law of Diminishing
Returns
Law of Diminishing L a w of Returns

to Factor
Law of Variable
Proportions Law of Returns Factor
R e t u r n s to Variable

HOTS HIGHER ORDER

THINKING
and
SKILLS QUESTIONNcl
marginal product when
NS
ther
VVT
total product
take place in
(a. 1./Whattype of changes
returns to a
factor?
(a) increasing
returns to a factor?
(b) diminishing
Why do these changes
take place
oroduct (TP) iincreases at an
CBSE, Foreign 2010)
Ans. (a) When there are increasing
returns to a factor,
total product
takes place due to following reasons-
ncreasing rate and
also rises. This change
marginal product (MP)
fixed factor
Better utilisation of the Variable Factor.
Increased Efficiency of
at a decreasing rate and Mp
returns to a factor, TP increases starts
(b) When there are diminishing maximum. Ihis change in TP and MPal
and TP is
declining. This phase ends when MP is zero takes
place due to following reasons:
Among different combinations between variable and fixed factor, there is one optimum combinalin
on,
at which TP is maximum. After making the optimum use of fixed factor, MP begins to fall
other.
Factors of production are imperfect substitutes of each
Q.2. Why MP curve cuts AP curve at its maximum point?
Ans. It happens because when AP rises, MP is more than AP When AP falls, MP is less than AP So, it is on
when AP is constant and at its maximum point, that MP is equal to AP Therefore, MP curve cuts AP cunve
at its maximum point.
Q.3. Can AP rise when MP starts declining?
Ans. Yes, AP can rise when MP starts declining. It can happen as long as falling MP s more than AP Howeve
when MP becomes equal to AR then further decline in MP will also reduce the AP
a. 4. What is the reaction of AP when: () MP is more than AP: (i) MP is less than AP; (i) MP is equal toA
Ans. The reaction of AP in different cases will be:
(i) AP will rise.
(i) AP will fall but it will remain positive.
(i) AP will be constant and at its maximum point.
zero;
0.5. What is the behaviour of TP, when: () MP rises; (i) MP falls, but remains positive: (ii) MPIs
(iv) MP becomes negative.
Ans. The behaviour of TP in different cases will be:
(i) TP increases at increasing rate.
(i) TP increases at diminishing rate.
(ii) TP is at its maximum point.
(iv) TP decreases.
9so f

a.
this6,) this
Statebehaviour. theDelhi201
of
the behaviour marginal product in the Law of Variable Proportions. Explain
CBSE
Ans. There are three phases of
change in MP:
1. MPrises: When the variable input is increased, efficient utilization of the fixed inpulo
to specialisation.
This raises efficiency of the variable
input.
2 MP falls but is positive: Beyond a point, increasing variable input puts pressure on ted
Production Function

5.19
MP continues to tall and is
3,
negative: There is so much
inputs that total product starts ed
pressure of the variable input on e
declining A
What are the ditfferent phases in the Law of Variable
reasons behind each phase. Use diagram. Proportions in terms of Total Product? Give
Ans. The
Phases are: (CBSE, Foreign 2015)
Phase : TP rises at increasing rate, i.e. upto A.
Phase Il: TP rises at decreasing rate, i.e.
between A and B.
Phase Ill: TP falls i.e. after B.
Reasons:
Phase I: Initially variable input is too small as
fixed input, As production compared to the
starts, there is efficient use B
of the fixed input,
leading to rise in productivity of the
variable input on account of division of labour. As a TP
result, TP rises at increasing rate.
Phase ll: After a level of output, pressure on fixed
to fall in input leads
productivity of the variable input. As a result,
TP continues to rise but at a
ll: The amount of variable
decreasing rate.
Phase input becomes too large in
comparison to the fixed input causing decline in TP O
Phase I Phase II Phase IlX
Variable Input
Q.8. Explain the changes that take place in total product and marginal product under
to a factor. increasing returns
CBSE. Al India Comptt. 2015 (1)}
Ans. Under increasing returns to a factor, total
product increases at increasing rate as more and more units
of a variable input are employed. As a result,
marginal product also increases.
Q.9. Give the behaviour of marginal product and total
product as more and more units of oniy one input
are employed while keeping other inputs as constant. (CBSE, All India 2017}
Ans. As more and more units of variable
factor are employed, total product increases at an increasing
rate initially and marginal product increases.
After sometime, use of more units of variable factor results in increase in total
product at diminishing
rate and marginal product fall, but is positive.
Uitimately, total product falls and marginal product becomes negative.

TRUE AND FALSE

Are the following statements true or false? Give reasons.
. When there are diminishing returns to a factor, total product always decreases.

CBSE, Delhi 2009 (1,l)}

raise. When there are diminishing returns to a factor, total product increases at a decreasing rate.
2. Total product will increase
only when marginal product increases. (CBSE, Delhi 2009 (1.|1I)
raise. Total product also increases when marginal product decreases but remains positive.
3.
Crease in total product always indicates that there are increasing returns to afactor.
(CBSE, Delhi 2009 (11)}
raise. Increase in total product also indicates diminishing returns to à factor.
when marginal product falls, average product will also tal.
CBSE, Delhi2010 (, I), Delhi Comptt. 2015 ()}
raise. AP falls only when MP < API MP is more than AP then AP wil rise even itMP tals.
5. The
distinction
between short and long run is based on a fixed time period.
dise.it depends on production conditions and is not based on fixed time period.
 5.20 Introductory Microeconomi
6. When there are diminishing returns to a factor, marginal and total product both always fall. mics
(CBSE, Delhi
False. in case of dinminishing returns to a factor, only marginal product falls and not total product 2009 (I)
7. Production function establishes a relation between inputs and output, which is technical
ical and not
economical in nature.
True. Production function establishes onlya technical relation between inputs and output. It is not econa
in nature as we do not consider the value of inputs and output.

8. When marginal product is zero, total product is at its maximum point.

True Zero marginal product signifies that change in total product is zero, ie. total product has sto
stopped
increasing and has attained its maximum point.
9. Both average product and marginal product can be negative.
False Marginal product (MP) can be negative but not average product (AP). MP is negative when Tp
falls with increase in variable input. However, AP cannot be negative as TP is always positive and never
negative.
10. Both average product and marginal product can be zero.
True. Marginal product can be zero when total product remains same with increase in variable input. Average
product can also be zero when total product is zero.
11. In the operation of the Law of Variable Proportions, all the factors are assumed to be variable.
False. Law of Variable Proportions operates when one input is variable and all other inputs are fixed.

12. TP. MP and AP are U-shaped curves.

Faise. All the curves (TP AP and MP) are inversely U-shaped curves.
13. In the long run, all factors of production are variable.
True. In the long run, firm can adjust all its inputs to make changes in the output.

14. Only variable factors are used for production in the short period.
Faise. In the short period, both variable arnd fixed factors are used for production.

15. Both variable and fixed factors exist in case of zero output.
False. Fixed factors may exist at zero level of output,
but not the variable factors.
of Law of Variable Proportions as total product
16. A rational producer aims to operate in first phase
increases at increasing rate.
as total product is maximum and marginal product
False. A rational producer aims to operate in second phase
of each variable factor is positive.
17. When average product is maximum, marginal product is greater than average product.
False. When average product is maximum, marginal product will be equal to average product
18. Under Law of Variable Proportions', factor ratio keeps on changing.
changing, when additional unis
True. The proportion or ratio between fixed and variable factor keeps on

variable factor are employed

19. Average product can rise even when marginal product starts declining.
True. II can happen as long as falling marginal product is more than average product.
20. cuts average product
Marginal productbecause
True. t happens from its(AP)
when average product top. rises, marginal product (MP) is more than AP W

AP falls, MP is less than AP So, MP cuts AP trom its top (Refer Fig. 5.5).
21. When marginal product is less than average product, average product falls. than
or down. So, AP falls when MP
IS Ie53
True.
Marginal product (MP) pulls the average product (AP) up
AP In Fig. 5.5, it happens after point E.
Production Function

5.21

AP

Units of Variable factor

MP
Fig.5.5
92 Rising average product is possible only when MP is
more than AP
True. When MP is more than AP
MP pulls AP up. So,
rising AP is possible only when MP> AR i.e. before
point E in Fig. 5.5.
23. Marginal product always rises when average product is
False. Marginal product can fall when increasing.
average product is increasing as long as
than average product. In Fig. 5.5, it happens from marginal product is more
point G to E.
24. The production function does not depend on the state of
False. Production function is always defined with
technology.
respect to a given state of technology. Any change in
tecinology will change the production function.
25. Average product will increase only when marginal product increases.
CBSE, Al India 2013, Delhi Comptt. 2016
()}
False. Average product will increase only when marginal product is greater than average product whether
MP is rising or falling.
26. Under diminishing returns to factor, total
a product continue to increase till marginal product reaches
zero.
CBSE, AlI India 2013
True. Under diminishing returns MP falls. TP increases till MP is positive.

27. Under diminishing returns to a factor, marginal product and total product both increase at a diminishing
rate. (CBSE, Delhi Compt. 2016 (1))
raise. Although TP increases at a diminishing rate, but MP falls under diminishing returns to a factor.

When total product is constant, (CBSE, Delhi Comptt. 2015 (1)}

0 averageTPproduct will fall.
True. Because and since TP is constant and variable input increases,
AP will fal.
Average Product =
Variable input
AVerage Productfalls only when marginal product is less than average product.
(CBSE, Delhi Compt. 2016 ())

True
rue, because AP like an average, fall if the MR the marginal value, is lower than AP
Vote:
AS As per CBSEguidelines, no marks will be given if reason to the answer is not explained.
per CBSE

GUIDELINES TO NCERT QUESTIONSs

1.
Explain the concept of a production function. and output
Hint relation between physical inputs
fOduction function is an expression of the technological
of a good.
5.22 Introductory Microeconom:
2. What is the total product of an input?
produced by a firm during a given period of
Hint: Total product refers to total quantity of goods time with
given number of inputs.
3. What is the average product of an input?
of variable input.
Hint: Average product refers to output per unit
4. What is the marginal product of an input?
when one more unit of variable factor is anm
Hint: Marginal product refers to addition to
total product,
product (TP) of an
and the total
ployed
5. Explain the relationship between the marginal
products (MP) input
MP".
"Relationship Between TP and
Hint: Discuss
run.
and the long
6. Explain the concepts of the short run
5.2-5.3.
Hint: Discuss "Short Run and Long Run"given on Page No.
7. What is the law of diminishing marginal product? more and more units of a variable factoror are
states that when
Hint: Law of diminishing marginal product factor must fall.
product of the
employed along with a fixed factor, the marginal
8. What is the Law of Variable Proportions? of only one input, keeping otherinp
we increase quantity
Hint: Law of Variable Proportions states that as rate and finally at a negative
rate, then at a decreasing
fixed, total product initially increases at an increasing
rate.
labour. Find the corresponding average product
total product schedule of
9. The following table gives the
of labour.
and marginal product schedules
4
2 5 3
Labour
115 35 50 40 48
TP oflabour(units)
Hint:
TP labour AP of labour (units) MP of labour (units)
Labour
( units) AP TP L MP TPn-TPn-1
0
15 15 15
2 35 17.50 20
3 50 16.67 15
4 40 10 -10
48 9.60 8
rginal
10. The following table gives the average product schedule of labour. Find the total product and may
product schedules. It is given that the total product is zero at zero level of labour employment
Labour 2 4 6
AP of labour (units) 3 4 4.25 4 3.50
Hint:
Labour AP of labour TP of labour
(L) (units)
(units) MP of labour (units)
TP AP xL MP TPn-TPn -1
1 2 2 2
2
3 4
12
4 4.25 17 5
5 4
20 3
6 3.50
21
1
Production Function 5.23

The following table gives the marginal product schedule of labour. It is also given that total product of
labour is zero at zero level of employment. Calculate the total and average product schedules of labour.

1 2 6
Labour 3 4 5
3
MPof labour (units) 5 5 3 1

Hint
Labour MP of labour TP of labour (units) AP of labour (units)
(L) (units) TP MP AP TP+L
3 3 3

2 5 8 4

3 7 15 5

4 20
5 23 4.60
6 24 4

12. Let the production function of a firm be: Q = 5L% K. Find out the maximum possible output that the
fim can produce with 100 units of L and 100 units of K.
Hint: Given: Q = 5L4 K; L = 100 units:; K= 100 units
Putting the values of L and K in the given production function, we get:

Q=5(100) (100)*
ie. Q=5 100100
Qor Maximum output = 500 units

13. Letthe production function of afirm be: Q=2L°K?.Find outthe maximum possible outputthatthe firm
can produce with 5 units of L and 2 units of K. What is the maximum possible output that the firm can

produce with zero unit of L and 10 units of K?

Hint: Maximum possible output with 5 units of L and 2 units of K

Given: Q=2L?K and L = 5 units; K =2 units

Puting the values of L and K in the given production function, we get:

O 2(5) (2P = 200 units

aximum possible output with 0 unit of L and 10 units of K
Given: Q=2L?K and L = 0 unit; K = 10 units
Puting the values of L arnd K in the given production function, we get:
Q=2(0 (10P =Ounit.
14. Find out the maximum possible output for a fim with zero unit of Land 10 units of K when its producton

function is: Q= 5L +2K.

Fint: Given: Q= 5L +2K. and L = O units; K = 10 units
rUting the values of L and K in the given production function, we get:
Q=5(0)+2(10)
Q
or Maximum output 20 units.
 .24
Introductory Microecond
REVISION EXERCISE OnOmie
Questions (MCQs)
Multiple
Choice describe the relationshinh
statements accurately
following AP and MP
1. Which of the above it and falls when
MP is below it,
rises when MP
is
(a) AP mininmum point.
(b)MP intersects AP at its other.
to each
AP and MP are aways parallel
(c) and vice-versa.
when MP is falling
(o) AP is always rising
about TP?
what can you say
2. When MP is zero, (b) TP is maximum
(a) TP is increasing (d) None of the above
(c) TP is falling
to addition to total output
when one more:
3. Marginal Product refers
(b) Unit is sold
(a) Unit is produced
(c) Unit is consumed
(d) Unit of variable factor is employed
4. The period of time in which the plant capacity can be varied is known as:
(a) Short un (b) Long run
(c) Both (a) and (b) (d) Neither (a) nor (b)

5. is the extension of "Law of Diminishing Returns".

Law of Variable Proportions (b) Law of Demand
(c) Law of Equi-marginal utility (d) Law of Diminishing Marginal Utility
6. Law of Variable Proportions is also known as:
(a) Law of Returns (b) Returns to Variable Factor
(c) Law of Returns to Factor (d) All of these
7.
The maximum possible output for a firm with two units of labour (L) and ten units of capitali (K), i
production function is given as: 5L +2K
(a) Ounits (b) 30 units
(c) 200 units (d) 50 units
8. Identity the phase in which TP increases at an increasing rate and MP also increases.
(a) Increasing returns to a factor (b) Diminishing returns to a factor
(C) Negative returns toa factor (d) None of these
9. Which of the
following is not a reason for operation of increasing returns to a tactor:
(a) Better utilisation of fixed factor
(b) Limitation of fixed factor
(c) Increase in
efficiency of variable factor (d) Indivisibility of fixed factor
10. When
average product increases, the
(a) Less than average marginal product is:
product (6) Equal to the average product
(c) More the average
product (d) None of these
11. What
happens to AP, when MP is more than AP?
(a) AP rises
(c) AP remains constant (b) AP fals
12. What is the behaviour of (d) None of these
TP, when MP becomes
(a) TP increases at an negative?
(c) TP is at its maximumincreasing rate
rate
() TP increases at diminishing
13.
point (d) TP decreases
According to Law of Variable Proportions,
(a) 1 there are -phasesS.
(c) 2 (b) 3
(d) 4
Production Function

5.25
Average product
cannot be negative because:
14.
Total produd can never be zero
(a) (b) Total product can be
Neither (a) nor (b) never negative
(c) (d) Both (a) and (b)
The law of minishing returns refers to an eventual fall in:
15.
ial Productivity of factors of production
(b) Total earnings of the firm
c)Marginal product of the variable factor
(d) None of these
The 2nd phase (diminishing returns to a tactor) is exhibited by the
50, 50, 50, 50
following total product sequence
(a) (b) 50, 110, 180, 260
(c)50,100,150,200 (d) 50, 90, 120, 140
Which phase of Laof variable Proportions has been ruled out on the
returns to a factor grounds of technical inefficiency:
a) Increasing (b) Diminishing returns to a factor
(c)Negative returns to a factor
(d) None of these
18. A rational producer always aims to operate in of Law of Variable
(a) 1st Phase (Increasing returns to a factor) Proportions:
(b) 2nd Phase (Diminishing returns to a factor)
c) 3rd Phase (Negative returns to a factor)
(d) Either 1st Phase or 2nd Phase
19. In general, most of the production functions measures:
a) Productivity of factors of production
(b)Economical relation between the factors of production
(c) Technical relation between inputs and output.
(d) None of these

20. Product per unit of labour employed is termed as:

a) Average product (6) Marginal product
(c) Total product (d) None of these
21. When AP is maximum, MP is equal to:
(a) AP (b) TP
(c) Zero (d) One
22. Variable factors refer to those
factors of production:
(a) Which can be only changed in the long run (b) Which can be changed in the short run
(c) Which can never be changed (d) None of these
23. Both AP and MP curves are
generally:
(a) U-shaped (b) Inversely U-shaped
(c) Rising (d) Falling
4. In
describing a given production technology, the short run is best described as lasting:
a) Upto six months from now (b) Upto five years from now
c) As long as all inputs are fixed (d) As long as at least one input is fixed
25. _ Is the period of time in which all the factors of production are variable.
(a) Short-run
(b) Long-run
(c) Medium-run (d) None of these
0. Ihe
'Marginal Product of a variable input is best described as:
a) Product divided by the number of units of variable input
0 Additional output resulting from a unit increase in the variable input
Additional output resulting froma unit increase in both variable and fixed inputs
Additional output resulting froma unit increase in the units produced
 5.26 Introductory
27. On the basis of following
schedule, answer the following questions:
Microeconomi
Units of Labour
Total Product (TP) Marginal Product (MP)
10
? 12
2
36
3
labour?
() What is TP at 2 units of
(b) 12
(a) 10
(d) 20
(c) 22
(i) What is MP at 3rd unit of labour?
(b) 12
(a) 22
(c) 36 (d) 14

(ii) The given schedule indicates the phase of:

(a) Diminishing Returns to a Factor (b) Increasing Returns to a Factor
(c)Negative Returns to a Factor (d) None of these
28. What is the maximum point of TP?
(a) When AP becomes zeroo (b) When MP becomes zero
(c) When MP cuts AP (d) None of these
29. Average Product can have:
(a) Positive values only (b) Negative values only
(c) Both positive as well as negative values (d) Neither positive nor negative values
30. Which of the following is correct?
(a) When MP is positive and falling, TP rises at a decreasing rate.
(b) When MP is rising, TP rises at an increasing rate.
(c) When MP is negative and faling, TP falls.
(d) All of these
31. At the Point of Inflexion:
(a) Total Product is maximum
(b) Average Product is maximum
(c) Marginal Product is maximum (d) Marginal Product is zero
32. When AP falls due to increase in
quantity of variable input:
(a) MP < AP
(b) MP= AP
(c) MP>AP
(d) None of these
33. The Law of deals with valy
the
input-output relationship, when the output is increaseu
quantity of one input.
(a) Variable Proportions
(c) Demand (b) Supply
34.
(d) Equi-marginal utility O
According to Law of Variable Proportions, when we increase one input keepin
inputs fixed, quantity of only
e a s e quantity
on
initially increases at an increasing rate, then at a decreasing
at a negative rate.
(a) Total Product
(b) Average Product
(c) Marginal Product
(d) None of these
35. Which of the following is not
a phase in the
Law of Variable Proportions?
(a) Increasing returns to a factor
(b) Constant returns to a factor
(c) Diminishing returns to a factor
(d) Negative returns to a factor
P r o d u c t i o nF u n c t i o n

5.27
6 . The tota output generated by the first four units of
500units
The marginal product of the third unit of variable
input is:
input is 200 units, 350 units, 450 uniis Id
ai
(a) 5 0 units

(c) 150 units

(b) 100 units
(d) 200 units
IHTP of employing
f employing oone unit of variable factor is
12 units and that of
37.
of 2 unitsof 2u
units of varia
ariable factor is 16 units,
the marginal product variable factor is:
(a) 3 units
(b) 4 units
(c) 8 units
(d) 16 units
hofofthe following
38. Which is correct statement showing the
relationship between AP and MP?

AP
X
O MP
Units of Variable
factor
(aWhen MP > AR, AP increases
(b) When MP AP, AP is constant
c)When MP < AP, APfalls (d) AH of these
39. Point of lInftexion' is represented by:

M
S
TTP
X
O
Variable
Input

O
Variable Input

(a) Point M (b) Point Q

() Point R (d) Point S
Ans. 1.(a): 2. (b); 3. (d);4. (b); 5. (a); 6. (d); 7. (b); 8. (a); 9. (b); 10. (c); 11.(a); 12. (d): 13. (b); 14.(
15. (c); 16. (d); 17. (c); 18. (b); 19. (c); 20. (a); 21. (a); 22. (b);23. (b); 24. (d); 25. (b); 26. (b);

27.(i-C, ii d, i b); 28. (b); 29. (a); 30. (d); 31. (c); 32.
-
-
(a); 33. (a); 34. (a); 35. (b);
36. (b); 37. (b); 38. (d); 39. (b)

Very Short Answer Type Questions (1 Mark each)

1.What is meant by production?
Ans. roduction
a
refers to transformation of inputs into output.
Q.2. Give ther All India 2011, Delhi Comptt. 2017)
meaning of production function. (CBSE, Delhi 2007,
Ans. Prd relation between physical inputs and output of
o n function is an expression of the technological
a good.
 ntroductory
5.28
short run? bea changed by changing only
icroecono
Q.3. What is
run refers
to a period in which output
can
variable tactor.
Ans. Short
run? be changed by chanainn
.

Whatis Long
can the t
Q.4.
run refers toaperiod in
which oulput

are fixed and others

variahlsa actors of productiog
Ans. Long
period, some
factors ofproduction Jction
Q.5. In which
Ans. Short run.
factors?
variable
m e a n by
a.6. What do you whicth can be changed in the short ru
tactors,
Ans. Variable factors
refer to those ple, raw mater
and power.
factors?
mean byfixed
Q.7. What do you which cannot be changed
in the shortt run
run. For
Er.

Ans. Fixed factors

refer to those factors example, buildi
machinery.
be zero or negative?
Q.8. Can Average product but Average productcan
Ans. Average product is zero
when total product is Zero,
can never he
never be negative
product cannot be negative.
Q.9. Define marginal physical product. CBSE, Delhi 2003, 05, 06, Delhi Compt 2
to addition to total product, when one
ne more unit of
Ans. Marginal physical product refers variable 1actor
factor is
employed.
Q.10. Can marginal product be zero ornegative?
Ans. Yes, marginal product can be zero as well as negative. lt can be zero if total product remains san
With
increase in variable input. It can also be negative when total product falls with increase in variable inat
a.11. What change will take place in marginal product, when total product increases at a diminishinm
rate? (CBSE, Sample Paper 2010)
Ans. Marginal product will decline but remain positive.
Q.12. As the variable input is increased by one unit, total output falls. What can you say about the margjina
productivity of variable input?
Ans. Marginal productivity of variable input is negative.
a. 13. Four units of labour produce 100 units of output and 5 units of labour produce 120 units of outpul
Calculate MP of the labour.
Ans. 20 units.
a.14. Name the law expressing the
relationship between the quantities of a variable factor and ne c
of output.
Ans. Law of Variable
Proportions.
Q. 15. In which phase of Law of Variable
Ans. Diminishing returns to a factor Proportions, a rational firm aims to operate?
(Phase Il).
Q. 16. Mention two reasons for
occurrence of the phase of increasing returns to a ia or.
Ans. () Better utilization of the
fixed factor; (i) Increased efficiency of variable facto
Q.17. What is meant by
Ans.
diminishing returns to a factor? 'ecreasingrate2
Diminishing returns to a
factor refers to a phase when
total product increases
marginal product falls, but remains positive, with
increase in variable factor.
Q.18. What is the general shape of
Ans. TP AP and MP curves are the TP, AP and MP curves?
inversely U-shaped.
Q.19. What will happen to MP, when TP increases at an
Ans. MPwill rise. increasing rate?
Production Function

o. Howwil. MP react, when TP rises at 5.29

u Ans.
MPfalls, but remains positive.
a
diminishing rate?
When MP
is zero, what can you say about TP?
Ans. TPIS m a x i m u m .

22.
fine Average Product
ct.
a fers to
Iverage product output per unit of variable CBSE, AI India Comptt. 2013 ()}
Ans.

of "Returns to a
input.
23.
Give meaning Factor".
turns to a tor refers
facto to the resultant increase (CBSE, Delhi Compt. 2013, Delhi 2014)
Ans. in the total
keeping all other factors fixed. product when only one factor is increased,
Define short-run roduction function.
a. 24.
.24hr-run production function refers to a situation when (CBSE, AIl India Comptt. 2017
while keeping other inputs unchanged. output is increased by changing only one input
a 25. Give the meaning or Long run production function'.

Ans Long run production function refers to a situation when

simultaneously and in the same proportion. output is increased by increasing all the inputs

Short Answer 1ype Questions (3-4 Marks each)

What is meant by variable factor and fixed factor? Give two examples of each.
2. Define the following terms: (i) Total product; (i)
Average product; (i) Marginal product.
3. What is meant by returns to a factor? State the law of
diminishing returns to a factor.
CBSE, Delhi 2006)
4. Explain the relationship between marginal product and average product.{CBSE, Delhi Comptt. 2012]
OR
State the relation between Marginal Product and Average Product. Use diagram.
CBSE, AIl India Comptt. 2013, Foreign 2017 (l1))
5. What is meant by returns to a factor? What leads to increasing returns toa factor? Explain.
CBSE, Delhi 2004)
6. What is meant by diminishing returns to a factor? Why does it occur?
7. In which phase a rational producer will operate in the short run?
8. What does the Law of Variable Proportions show? State the behaviour of total product according to
this law. CBSE, Delhi 2012)
9. What does the Law of Variable Proportions show? State the behaviour of marginal product according

to this law. (CBSE, All India 2012)}

0. State the phases in the behaviour of Total Product as per the Law of Variable Proportions. Use

diagram. (CBSE, AIl India Comptt. 2013, Foreign 2014, Delhi 2017
11. {CBSE, AIl India 2014}
ving reasons, explain the 'Law of Variable Proportions
12. Dis the concepts of Short Run Production Function and Long Run Production Function.
13. S
Run Production Function.
Sthe concepts of Short Run Production Function and Long
14. What is increased and others kept constant?
p e of production function is this in which only one input (CBSE, Foreign 2016
late the behaviour of total product in this production function.
Hint:
Type of Production Function is Short Run Production Function'
15. Define duction ction. Distinguish between short run and long run production functions.
(CBSE, Delhi 2016)
 Introducto oeconomics
when an.
of marginal product one
5.30
State the
behaviour
input is
16. Define
marginal product. constant.
(CBSE, AIl Inincreased
are held OR
and other inputs
Product under
Returns to a Factor
Marginal Physical
State the
behaviour of
CBSE, Sample Paper
2017
2017
Answer Type
Questions (6 Marks each)
Long with the neip Or tolal and marginal physical nrod. .

Proportions
1. Explain the
Law of Variable Curves.
CBSE, Delhi 2005, 2013, Delhi Compt
Marginal Product when for increasin
2015)
behaviour of Total
Product and increasing production
2. Explain the likely
increased while all
other inputs are kept constant. {CBSE, Sample Paper 20onty
one input is
OR
Variable Proportions in terms of total physical product. Usedian
State the phases of the Law of
CBSE, Dlhi 2007
OR
the behaviour of both Total Product and Marnine
Explain the Law of Variable Proportions through ginal
Product. Give reasons. (CBSE, Delhi 2008,10
OR
State the different phases of changes in Total Product and Marginal Product in the Law of Variabe
Proportions. Also show the same in a single diagram. (CBSE, Delhi 2015)
3. Explain the law of diminishing returns with the help of a hypothetical schedule anddiagram
4. Explain reasons for: () Increasing returns to a factor; (i) Diminishing returns to a factor.
5. Discuss the relationship between: () MP and TP;(i) AP and MP
6. Distinguish between: () Variable factors and Fixed factors; (i) Short-run and Long run.
7. What are the different phases in the Law of Variable Proportions in terms of marginal product? Gine
reason behind each phase. Use diagram. CBSE, All India 2015)
8. Explain the changes that take place in total product and marginal product under diminishing returts
to a factor. CBSE, India Comptt.2015 (0 A
9. State with the help of a marginal product schedule the different phases of the Law of vanau
Proportions. {CBSE, All India Comptt. 2015(
10. Explain the law of variable proportions with the help of a numerical example
201)
CBSE, AIl India Comptt.
Unsolved Practicals
Practicals on TP, AP and MP
1. Calculate Average Product (AP) and
Marginal Product (MP):
Variable Factor (units) 1 2 3 4 5 6
TP (units) 8 16 24 29 29
25
8, 8, 3,
AP8, 8, 8, 7.25, 5.80, 4. 16;MP:8,
2. Calculate Average Product
(AP) and Marginal Product (MP):
Variable Factor (units) 3 4 5 6 7
TP (units) 0 3 8 12 17 17 16
15 2 0 -

AP3, 4, 4, 3.75, 3.40, 2.83, 2.28; MPi

ProductionFunction
n
5.31
TP and AP
Calculate
3. 1
Variable Factor (units)
3
6 7
20 16
MP(units) 12 8 4 0 - 4

IP: 20, 36, 48, 56, 60, 60, 56; AP: 20, 18, 16, 14, 12, 10, 8)
4. CalculateTP and AP from the following data:
Variable Factor (units) 2 3 4 5
10 11
MP(units) 10 8

TP: 10, 21, 31, 40, 48: AP: 10, 10.50, 10.33, 10, 9.60)
5. Calculatethe values of TP and AP:
Variable Factor (units) 2 3 4 5 6

MP(units) 10 12 14 12 7 5

(TP: 10, 22, 36, 48, 55, 60;AP: 10, 11, 12, 12, 11, 10)
TP and MP:
6. Compute
Variable Factor (units) 1 2 3 4 5

AP (units) 50 45 40 35 30

(TP:50, 90, 120, 140, 150; MP: 50, 40, 30. 20, 10)
7. Calculate TP and
MP:

Variable Factor (units) 1 2 3 4 5 6

AP(units) 50 48 45 42 39 35

(TP:50, 96, 135, 168, 195, 210; MP: 50, 46, 39, 33, 27, 15)
8. Find out the missing values from the following table:

iable Factor (units) 2 3 4 5

24
TP (units) 10

6 5
AP(units)
MP (units) 4
(TP:0, 4, 10, 18, 24, 25; AP:- 4, 5, 6, 6, 5; MP:, 4, 6, 8, 6, 1

9. (CBSE, Delhi 2013 (1l))

Complete the following table:
Units of Labour Average Product Marginal Product
(Units) (Units)
1 16
2 20
20
3
4 18
8
5
6 14
Product: 16, 24, 20,12, 8, 4)
Average Product: 16, 20, 20,18,16,14;Marginal
 5.32
Introductory Microeconomics
Practicals on Law of Variable Proportions
schedule:
10. Complete the following
CBSE, Sample Paper 20161
Units TPP (Units) APP (Units) MPP (Units)
100
140
3
140
480
fPP: 100, 240, 420, 480; APP:100, 120, 140, 120; MPP: 100, 140, 180, 60
11. Calculate MP of the variable factor and
identify the various phases of change in total product, from the
following schedule:

Units of variable factor (VF) 0 1 2 3 4 6

TP (units) 0 10 28 45 52 52 48

18, 17, 7, 0, -4; Phases 1s" phase upto 2 units of V

-

(MP:-, 10, from 6t" unit of VE

2nd phase from 3 to 5 units of VE; 3 phase
12. Identify the three phases of the Law of Variable Proportions from the following schedule
(CBSE, Delhi (C) 200

Units of Labour 3 4 5
1 2
50 70 80 60
Total Physical Product (units) 20
Phases- 1st phase upto 2 units of labour; 2nd phase from 3 to 4 units of labour:
3rd phase from 5th unit of labour)
which there are increasing returns to a factor. Give
13. From the following table, find out the phase during CBSE, Delhi Comptt. 2011 ()
reasons for your answer.

1 2 3 4 5
Units of variable factor
10 12 14 14.5 14
Average Product (units)
factor is governed till 3 units of output as MP is increasing
(First Phase of increasing returns to in this phase; MP: 10, 14, 18, 16, 12)
Give
phases of the law of variable proportions.
reasons.
three
14. Identify the
(CBSE, Delhi Comptt. 2017
Variable Input (units) Total Product (units)
1 5
2 11
3 15
4 17

5 15
Phase I is upto 2 units of output because MP rises or TP rises at an increasing raie
Pnase ll is from 3 upto 4 units of output because MP falls but is positive or TP rises at a decreasingdt
or TP 1als/
Phase lll is from 5" unit of output onwards because MP becomes negative
 ion
P r o d i u c t i o nF u n c t i o r

5.33

POWER BOOSTER
LAW OFRETURNS TO SCALE
Returus to scale refers to the change in output when all
scale the factor
Retur roportions in the long run. When a firm
e same proportions
inputs are
changed simultaneousty
im change the quantity of all inputs in the long
run,itchanges its scale of productior
rds of
words Watson, "Returns to Scale relates to the
of Wat
In the
in sameproportio. and it is a long run concepf". behaviour of total output as all inputs are varied

Three Types (or Stages) of Returns to Scale

ding to this law, when all factor
According inputs are varied in the same
proportions, scale of
onduction may take the following three forms:
1 Increasing Returns to Scale: When proportionate increase in total
output is more than proportionate
increase in inputs, it is Increasing Returns to Scale. It means, if all the
inputs are increased by
100%, then the output increases by more than 100%o, as seen in Table 5.5.
Table 5.5: Increasing Returns to Scale
Inputs(units) Output Percentage Percentage
(K=Capital;L=Labour (units) Increase in Inputs | Increase in Output
1K+ 2L 100
2K+ 4L 250 100% 150%
4K+8L 600 100% 140%
Increasing Returns to Scale occurs mainly due to 'Economies' of large scale. Economies refer
to benefits due to large scale of production.
Economies of scale can be classified into two categories:
(i) Internal Economies: It refer to benefits of large scale
production which are available
to a firm within its own operation. For example, Technical Economies in the form of
use of bigger and better machinery and Managerial Economies through division of
labour and specialisation.
(1) External Economies: It refers to benefits of large scale production which are shared
in by all the firms in an industry, when industry as a whole expands. For example,
better infrastructural facilities.
Constant Return to Scale: When proportionateincreasein total output
is equal to proportionate
a S e in inputs, it is Constant Returns to Scale. It means, if all the inputs are increased by
070, then the output also increases by 100%, as seen in Table 5.6.

Table 5.6: Constant Return to Scale

Inputs (units) Output Percentage Percentage
(K= Capital; L= Labour) (units) Increase in Inputs Increase in Output

4K+8L 600
8K+ 16L 1,200 100% 100%
16K+ 32L 2/-00 100% 100%
5.34 Introductory Microecond
onomics
after the firm has achieved the noint point of optimum
Constant Returns to Scale operates
After this point, economies ofproduction dby the
are counterbalanced seconomie
capacitv.
of production.
proportionate increase in total outnt
Returns to Scale: When
.
3. Diminishing than
Scale. It means, if all
inputs, it is Diminishing Returns to
proportionate increase in e input
are increased by 100%,
then the output increases by less than 100%, as seen in le 5,7
Table 5.7: Diminishing Returns to Scale

Inputs (units) Output Percentage Percentage

(K Capital; L = Labour) (units) Increase in Inputs Increase in Output
16K+32L 2,400
32K+64L 4,200 100% 75%
64K+ 128L 7,350 100% 75%

Decreasing Returns to Scale occurs mainly due to diseconomies of large scale. Diseconomies
of scale mean that a firnm has grown so large that it becomes very difficult to manageit
Diseconomies of scale can be of two types:
i) Internal Diseconomies: It refers to disadvantages of large scale production which a
firm has to suffer due to its own operation. For example, ditficulty in coordination of
management and Technological Diseconomies due to heavy costs of wear and tear,
(ii) External Diseconomies: It refers to disadvantages of large scale production which are
suffered by all firms in an industry, when industry as a whole expands. For example,
shortage of factor and non factor inputs and stiff competition.
Difference between Returns to a Factor and Returns to Scale
Basis Returns to a Factor Returns to Scale

Meaning Returns to a factor refers to the resultant Returns to scale refers to the change
increase in the total product when only | in output when all the factor inputs are
one factor is increased, keeping all other changed simultaneously in the same
factors fixed. proportions in the long run.

TimePeriod Iftapplies to short run production function. It is concerned with long run production
function.
Factor There is a change in the ratio of fixed and There is no change in the factor proporio
Proportion variable factors as variable factors goes
on changing.
Scale of There is no change in scale of production.
Production Only level of
There is a change in scale of production.
production changes.
Reason for
Operation
Output changes due to change in marginal Output changes due to chang
in
productivity of variable factor.
efficiency
of all factors.