1. Theory of Production
BHARAT POUDEL
Author and co –author of several text books, from
+2 level to Master’s level

2. Production
• Production is the process of transforming
inputs into output.
• The term ‘production’ means a process by
which tangible and intangible inputs or factors
of production (land, labour, capital, etc) are
converted or transformed to useful tangible
and intangible output.

3. Production Function
 The technical relationship between inputs and
output is called production function.
• Mathematically a production function can be
stated as,
Q = f(K, L, N, T, t , B …) … … … (i)
Where
Q = Output, K = Capital
L = Labor, N = Land
T = Technology, B= Building
t = time

4. Short-run Production Function
 Short-run production function refers to the
relationship between output and the variables
factors of production only like labor, raw
materials etc., which can be instantly changed.
• In short-run, labour is supposed to be variable
factor. The firm can change its output by
changing units of variable factor keeping other
factor constant. It can be written as
Qx = f(K ,L)

5. Long-run Production Function
 The input-output relationship when the
quantity of all factor input is varied, is known
as long-run production function.
 The long-run production function can be
written as;
Q = f (L, K, N, T )......(ii)

6. Total Product
• It refers to the total amount of a commodity
produced by the combination of all inputs in a
given period of time.
• Total product is cumulative values of marginal
products. It is defined as follows.
• ⇒ TP = AP × N
Where
N = Total number of inputs employed

7. TP Curve
0
10
20
30
40
50
60
70
1
1 2 3 4 5 6 7 8
TP
X
Y
Unit of labor

8. Average Product
• An average product is the outcome of the
total product divided by the total units of
the input employed.
• It is also known as output per unit factor
input.
AP = TP/N

9. AP Curve
0
2
4
6
8
10
12
14
1
1 2 3 4 5 6 7 8
AP
X
Y
Unit of Labor
A

10. Marginal Product
• Marginal product may be defined as the change
in total product resulting from one additional
unit of the variable factor.
MP = ∆TP/∆N

11. MP Curve
-2
0
2
4
6
8
10
12
14
16
1 2 3 4 5 6 7 8
Y
X
MP
Unit of labor

12. Conti….
Thanks to all