Concept of Production Function

1 Mark Questions

1. Give the meaning of returns to a factor. (Delhi 2014; All India 2009)

Ans. Returns to a factor refers to the behavior of output when only variable factor of production is increased in the short-run and fixed factors remaining constant.

2. Define Marginal Product. (All India 2014)

Ans. Marginal Product is the change in Total Product as a result of unit change in the input of a variable

and the second of the second

<math>MP_{nth} = TP_n - TP_{n-1}</math>

Here, MP = Marginal Product

TP = Total Product

3. Define production function. (All India 2011, 2008, 2006; Delhi 2009,2007)

Ans. Production function studies the functional relationship between physical inputs and physical output.

It is expressed as <math>Q_x = F(t, K)</math>

Where, <math>Q_x = Quantity of output</math>

<math>L = Labour</math>

<math>K = Capital</math>

4. Give meaning of Marginal Physical Product. (All India 2007; Delhi 2006, 2006C)

Ans. Marginal Physical Product refers to an additional output caused by use of an additional unit of the variable factor, fixed factor remaining constant, it is calculated as,

<math>MP_{nth} = TP_n - TP_{n-1}</math> or <math>MP = \frac{\Delta TP}{\Delta I}</math>

3 Mark Questions

1. State the relation between Marginal Revenue and Average Revenue. (Delhi 20014)

Ans. Relationship between MR and AR are:

1. When AR is constant, MR – AR.
2. When AR is diminishing, AR > MR.

Land (Acre) Number of TPP (Quintal) APP (Quintal) MPP (Quintal)

laborers 1 0 0 0 _ Stage I

1 1 2 2 2

1 2 6 3 4

1 3 12 4 6

٧ 4 16 4 4

1 5 18 3.6 2 Stage II

1 6 18 3 0

1 7 14 2 (-)4 Stage III

1 8 8 1 H 6

1. MR can be negative, but not AR.

6. Why is Average Revenue always equal to price? (All India 2014)

Ans. Average Revenue is the per unit revenue (price) received from the sale of one unit of a commodity.

With the help of following equation we can prove <math>AR = P</math>.

As we know,

<math>AR = \frac{TR}{R}</math>

<math>TR = P \times Q</math>

(Here, <math>P = Price</math>, <math>Q = Quantity or Output sold)</math>

Thus,

<math display="block">AR = \frac{P \times Q}{C}</math>

Hence, it is proved AR = Price.

7. Giving reasons, explain the Law of Variable Proportion. (All India 2014)

Ans. The Law of Variable Proportion shows the impact on output when units of variable factor are increased, keeping fixed factors constant in the short-run.

The law states that if more and more units of a variable factor are employed with fixed factors, Total Physical Product (TPP) increases at an increasing rate in the beginning, then increases at a diminishing rate and finally starts falling.