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Production and Function Cheatsheet @ajnabijee

The document provides a concise overview of production concepts in microeconomics, including definitions of production, production functions, and the distinctions between short run and long run. It outlines key terms such as total product, average product, and marginal product, along with the laws of variable proportions and diminishing returns. Additionally, it explains the relationships between total product, marginal product, and average product.

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20 views3 pages

Production and Function Cheatsheet @ajnabijee

The document provides a concise overview of production concepts in microeconomics, including definitions of production, production functions, and the distinctions between short run and long run. It outlines key terms such as total product, average product, and marginal product, along with the laws of variable proportions and diminishing returns. Additionally, it explains the relationships between total product, marginal product, and average product.

Uploaded by

haqedodab.jotudamaq
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Production and Function​

Microeconomics
___

Cheatsheet for revision

●​ Production refers to transformation of inputs into output.​

●​ Production function refers to the functional relationship between


inputs and output for a given state of technology.​

●​ Short run refers to a period in which output can be changed by


changing only variable factors.​

●​ Long run refers to a period in which output can be changed by


changing all factors of production.​

●​ Variable factors refer to those factors, which can be changed in the


short run.​

●​ Fixed factors refer to those factors, which cannot be changed in the


short run.​

●​ Short Run Production Function refers to a situation when output is


increased by changing only one input while keeping other inputs
unchanged.​
●​ Long Run Production Function refers to a situation when output is
increased by increasing all the inputs simultaneously and in the same
proportion.​

●​ Total Product refers to total quantity of goods produced by a firm


during a given period of time with given number of inputs.​

●​ 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 employed.​
MPn=TPn−TPn−1MPn = TPn - TP{n-1}​

●​ Law of Variable Proportions states that as we increase quantity of


only one input keeping other inputs fixed, total product initially
increases at an increasing rate then at a decreasing rate and finally at
a negative rate.​

Three Phases of Law of Variable Proportions

(a) Increasing Returns to a Factor: TP increases at an increasing rate and


MP increases;​
(b) 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 are employed with a fixed factor, then marginal
product of the factor must fall.​
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;​


(b) When MP = AP, AP is constant and at its maximum point;​
(c) When MP < AP, AP falls;​
(d) MP becomes negative whereas AP remains positive.

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SATYAM

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