![]() ![]() The former relates to increasing returns to scale and the latter to decreasing returns to scale. (ii) Non-homogeneous production function of a degree greater or less than one. Such a production function expresses constant returns to scale, Doubling the inputs would exactly double the output, and vice versa. (i) Linear homogeneous of the first degree in which the output would change in exactly the same proportion as the change in inputs. They are decreasing if the increase in output is less than proportional to the increase in inputs. The returns to scale are increasing when the increase in output is more than proportional to the increase in inputs. The returns to scale are constant when output increases in the same proportion as the increase in the quantities of inputs. In the long run, it is possible for a firm to change all inputs up or down in accordance with its scale. The long-run production function is shown in terms of an isoquant such as 100 Q. With the increase in inputs of capital and labour to OK 1 and OL 1, the output increases to 200 Q. The long-run production function is depicted in Figure 3 where the combination of OK of capital and OL of labour produces 100 Q. Given the level of technology, a combination of the quantities of labour and capital produces a specified level of output. Equations (1) and (2) represent the long-run production function. The firm can change its plants or scale of production. Production can be increased by changing one or more of the inputs. In the long run, all inputs are variable. A movement along the production function shows the increase in output as capital increases, given the quantity of labour employed, L 2 If the quantity of labour increases to L 2 at a point of time, the production function Q = f (K,L 1) shifts upwards to Q=f(KL 2). This production function is depicted in Figure 2 where the slope of the curve represents the marginal product of capital. On the other hand, if labour is taken as a fixed input and capital as the variable input, the production function takes the form Q =f (KL) …(4) If the amount of capital increases to K, at a point of time, the production function Q = f (L, K 1) shifts upwards to Q = f (L,K 2 ), as shown in the figure. ![]() A movement along the production function shows the increase in output as labour increases, given the amount of capital employed K. This production function is depicted in Figure 1 where the slope of the curve shows the marginal product of labour. ![]() The short-run production function in the case of two inputs, labour and capital, with capital as fixed and labour as the variable input can be expressed as This aspect of the production function is known as the Law of Variable Proportions. However, in the short run, it is possible to increase the quantities of one input while keeping the quantities of other inputs constant in order to have more output. In the short run, the technical conditions of production are rigid so that the various inputs used to produce a given output are in fixed proportions. The long run production function pertains to the changing scale of production. (v) The short run production function pertains to the given scale of production. (iv) From the economic point of view, a rational firm is interested not in all the numerous possible levels of output but only in that combination which yields maximum outputs. The theory of production centres round the concept of production function which we explain now. Therefore, this is known as batch production. ![]() In this type of production, variety of products is manufactured in lots at regular interval. It is bigger in scale than unit production while it is smaller than mass production. It is a stage in-between unit production and mass production. it does not have any non-producing time.īatch production is generally adopted in medium size enterprises. Mass production is continuous production, i.e. This type of production requires specially planned layout, special purpose machines, jigs and fixtures, automatic machines, etc. Mass production uses mechanical aids for material handling. This type of production requires lot of flexibility in operation. This is a method to meet the individual requirements of customers. This type of production is used for things which cannot be produced on large scale, things of high artistic nature, i.e. The unit production is otherwise known as job-order production. ![]()
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