Explain the help of diagrams explain the concepts of productions function in short run and long run analysis explain the managerial uses of production function
Answers
Answered by
1
Production in the short run in which the functional relationship between input and output is explained assuming labor to be the only variable input, keeping capital constant.
In the long run production function, the relationship between input and output is explained under the condition when both, labor and capital, are variable inputs.
In the long run, the supply of both the inputs, labor and capital, is assumed to be elastic (changes frequently). Therefore, organizations can hire larger quantities of both the inputs. If larger quantities of both the inputs are employed, the level of production increases. In the long run, the functional relationship between changing scale of inputs and output is explained under laws of returns to scale. The laws of returns to scale can be explained with the help of isoquant technique.
ADVERTISEMENTS:
Isoquant Curve:
The relationships between changing input and output is studied in the laws of returns to scale, which is based on production function and isoquant curve. The term isoquant has been derived from a Greek work iso, which means equal. Isoquant curve is the locus of points showing different combinations of capital and labor, which can be employed to produce same output.
It is also known as equal product curve or production indifference curve. Isoquant curve is almost similar to indifference curve. However, there are two dissimilarities between isoquant curve and indifference curve. Firstly, in the graphical representation, indifference curve takes into account two consumer goods, while isoquant curve uses two producer goods. Secondly, indifference curve measures the level of satisfaction, while isoquant curve measures output.
Some of the popular definitions of isoquant curve are as follows:
ADVERTISEMENTS:
According to Ferguson, “An isoquant is a curve showing all possible combinations of inputs physically capable of producing a given level of output.”
According to Peterson, “An isoquant curve may be defined as a curve showing the possible combinations of two variable factors that can be used to produce the same total product”
From the aforementioned definitions, it can be concluded that the isoquant curve is generated by plotting different combinations of inputs on a graph. An isoquant curve provides the best combination of inputs at which the output is maximum.
Following are the assumptions of isoquant curve:
i. Assumes that there are only two inputs, labor and capital, to produce a product
ii. Assumes that capital, labor, and good are divisible in nature
iii. Assumes that capital and labor are able to substitute each other at diminishing rates because they are not perfect substitutes
iv. Assumes that technology of production is known
On the basis of these assumptions, isoquant curve can be drawn with the help of different combinations of capital and labor. The combinations are made such that it does not affect the output.
ADVERTISEMENTS:
Figure-4 represents an isoquant curve for four combinations of capital and labor:
In Figure-4, IQ1 is the output for four combinations of capital and labor. Figure-4 shows that all along the curve for IQ1 the quantity of output is same that is 200 with the changing combinations of capital and labor. The four combinations on the IQ1 curve are represented by points A, B, C, and D.
Table-4 shows the relationship between input and output for IQ1 curve:
In Table-4, as we move from A to D, capital starts decreasing with the increase in labour. This shows that capital is substituted by labor, while keeping the output unaffected.
As discussed earlier, isoquant curve is almost similar to indifference curve. The properties of isoquant curve can be explained in terms of input and output.
Some of the properties of the isoquant curve are as follows:
i. Negative Slope:
Implies that the slope of isoquant curve is negative. This is because when capital (K) is increased, the quantity of labor (L) is reduced or vice versa, to keep the sam
In the long run production function, the relationship between input and output is explained under the condition when both, labor and capital, are variable inputs.
In the long run, the supply of both the inputs, labor and capital, is assumed to be elastic (changes frequently). Therefore, organizations can hire larger quantities of both the inputs. If larger quantities of both the inputs are employed, the level of production increases. In the long run, the functional relationship between changing scale of inputs and output is explained under laws of returns to scale. The laws of returns to scale can be explained with the help of isoquant technique.
ADVERTISEMENTS:
Isoquant Curve:
The relationships between changing input and output is studied in the laws of returns to scale, which is based on production function and isoquant curve. The term isoquant has been derived from a Greek work iso, which means equal. Isoquant curve is the locus of points showing different combinations of capital and labor, which can be employed to produce same output.
It is also known as equal product curve or production indifference curve. Isoquant curve is almost similar to indifference curve. However, there are two dissimilarities between isoquant curve and indifference curve. Firstly, in the graphical representation, indifference curve takes into account two consumer goods, while isoquant curve uses two producer goods. Secondly, indifference curve measures the level of satisfaction, while isoquant curve measures output.
Some of the popular definitions of isoquant curve are as follows:
ADVERTISEMENTS:
According to Ferguson, “An isoquant is a curve showing all possible combinations of inputs physically capable of producing a given level of output.”
According to Peterson, “An isoquant curve may be defined as a curve showing the possible combinations of two variable factors that can be used to produce the same total product”
From the aforementioned definitions, it can be concluded that the isoquant curve is generated by plotting different combinations of inputs on a graph. An isoquant curve provides the best combination of inputs at which the output is maximum.
Following are the assumptions of isoquant curve:
i. Assumes that there are only two inputs, labor and capital, to produce a product
ii. Assumes that capital, labor, and good are divisible in nature
iii. Assumes that capital and labor are able to substitute each other at diminishing rates because they are not perfect substitutes
iv. Assumes that technology of production is known
On the basis of these assumptions, isoquant curve can be drawn with the help of different combinations of capital and labor. The combinations are made such that it does not affect the output.
ADVERTISEMENTS:
Figure-4 represents an isoquant curve for four combinations of capital and labor:
In Figure-4, IQ1 is the output for four combinations of capital and labor. Figure-4 shows that all along the curve for IQ1 the quantity of output is same that is 200 with the changing combinations of capital and labor. The four combinations on the IQ1 curve are represented by points A, B, C, and D.
Table-4 shows the relationship between input and output for IQ1 curve:
In Table-4, as we move from A to D, capital starts decreasing with the increase in labour. This shows that capital is substituted by labor, while keeping the output unaffected.
As discussed earlier, isoquant curve is almost similar to indifference curve. The properties of isoquant curve can be explained in terms of input and output.
Some of the properties of the isoquant curve are as follows:
i. Negative Slope:
Implies that the slope of isoquant curve is negative. This is because when capital (K) is increased, the quantity of labor (L) is reduced or vice versa, to keep the sam
Similar questions