PRODUCTION FUNCTION

TWO TYPES OF PRODUCTION FUNCTION • Short run production function: The short

run is a time period where at least one factor of production is in fixed supply.

• Long run production function: Long run is a period where fixed factors is changed.

Managerial Use of Production Function • Calculate the least cost input combination.

• Calculate the maximum-input-output combination

• Deciding on the value of employing a variable input factor

• Aid in long run decision making

LAW OF VARIABLE PROPORTION

• The law of variable proportions states that in all productive processes, adding more of one factor of productions while others are held constant will at some point yield lower per-unit returns

Importance of the law of variable proportion • It is helpful in understanding clearly the

process of production.

• The tendency of diminishing returns is found in all sectors of the economy .

• The law tells us that any increase in the units of variable factor will lead to increase in the total product at a diminishing rate.