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Production refers to the
     transformation of resources into
       outputs of goods and services
FOR INSTANCE : General motors (G.M.) hires workers who use machinery in
factories to transform steel , plastic , glass , rubber , etc into
                            AUTOMOBILES
Steel + Plastic + Glass + Rubber + Motor parts = CRUZE



PRODUCTION FUNCTION : It’s the functional technical relationship between
physical inputs and outputs of a firm.
                           P = F [ L, K , S ]
Factor of production




In economics, factors of production (or
productive inputs or resources) are any
commodities or services used to produce goods
and services.

                                          3
FIXED AND VARIABLE INPUTS

• FIXED FACTOR OF PRODUCTION :
• It is defined as the quantity of which cannot be changed in
  the short run as the level of output changes e.g. building ,
  plants , supply of skilled labour.


• VARIABLE INPUTS
  It is defined as the one in which the quantity may be changed
   in the short run as the level of output changes. Some
   examples are raw material , Labour services.

                                                                  4
HOW WILL TOTAL
OUTPUT CHANGE
WHEN ALL INPUTS
EXCEPT FOR ONE
  ARE FIXED ?
This law states that as one variable
factor is combined with other fixed
factor of production then the
proportion of the factors is changed
and the TP at first rises more than
proportionately , then
equiproportionately , finally less than
proportionately.

                                      6
(1) Only 1 factor is variable.
(2) All units of variable factors are
   same.
(3) Technique of production is
   constant.
(4) Factor’s of production can be
   used in different proportions.

                                    7
Title




BEHAVIOR               TP                          MP
STAGE 1    TP increases at increasing           Increasing
                      rate
STAGE 2    TP increases at diminishing   BECOMES max & STARTS
              rate becomes MAX &          falling , becomes ZERO.
                   CONSTANT
STAGE 3         TP starts falling         IT becomes NEGATIVE 8
SCHEDULE
Units of Labour   TP       MP

      1           80       80
      2           170      90
                                               I Stage
      3           270      100
      4           368      98
      5           430      62
      6           480      50                  II Stage

      7           505      24
      8           505      0
      9           495      -9
                                   III Stage
     10           470      -25

                                                          9
STAGE OF RATIONAL DECISION




      THE GREATEST OUTPUT IS AT THE END OF
       STAGE 2. THEREFORE STAGE 2 IS IDEAL
        BECAUSE THERE IS BALANCE BETWEEN
         PRODUCTIVITY AND TOTAL OUTPUT.


                                         10
11

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Law Of Variable Proportions (Economics)

  • 1. 1
  • 2. Production refers to the transformation of resources into outputs of goods and services FOR INSTANCE : General motors (G.M.) hires workers who use machinery in factories to transform steel , plastic , glass , rubber , etc into AUTOMOBILES Steel + Plastic + Glass + Rubber + Motor parts = CRUZE PRODUCTION FUNCTION : It’s the functional technical relationship between physical inputs and outputs of a firm. P = F [ L, K , S ]
  • 3. Factor of production In economics, factors of production (or productive inputs or resources) are any commodities or services used to produce goods and services. 3
  • 4. FIXED AND VARIABLE INPUTS • FIXED FACTOR OF PRODUCTION : • It is defined as the quantity of which cannot be changed in the short run as the level of output changes e.g. building , plants , supply of skilled labour. • VARIABLE INPUTS It is defined as the one in which the quantity may be changed in the short run as the level of output changes. Some examples are raw material , Labour services. 4
  • 5. HOW WILL TOTAL OUTPUT CHANGE WHEN ALL INPUTS EXCEPT FOR ONE ARE FIXED ?
  • 6. This law states that as one variable factor is combined with other fixed factor of production then the proportion of the factors is changed and the TP at first rises more than proportionately , then equiproportionately , finally less than proportionately. 6
  • 7. (1) Only 1 factor is variable. (2) All units of variable factors are same. (3) Technique of production is constant. (4) Factor’s of production can be used in different proportions. 7
  • 8. Title BEHAVIOR TP MP STAGE 1 TP increases at increasing Increasing rate STAGE 2 TP increases at diminishing BECOMES max & STARTS rate becomes MAX & falling , becomes ZERO. CONSTANT STAGE 3 TP starts falling IT becomes NEGATIVE 8
  • 9. SCHEDULE Units of Labour TP MP 1 80 80 2 170 90 I Stage 3 270 100 4 368 98 5 430 62 6 480 50 II Stage 7 505 24 8 505 0 9 495 -9 III Stage 10 470 -25 9
  • 10. STAGE OF RATIONAL DECISION THE GREATEST OUTPUT IS AT THE END OF STAGE 2. THEREFORE STAGE 2 IS IDEAL BECAUSE THERE IS BALANCE BETWEEN PRODUCTIVITY AND TOTAL OUTPUT. 10
  • 11. 11