|India People Economy
1. Explain the concept of a production function.
The production function of a firm is a relationship between inputs used and output produced by the firm for various quantities of inputs used, it gives the maximum quantity of output that can be produced.
A production function is defined for a given technology it is the technological knowledge that determines the maximum levels of output that can be produced using different combination of inputs. If the technology improves, the maximum levels of output obtainable for different input combinations increase.
2. What is the total product of an output?
The total product of a variable factor of production identifies what outputs are possible using various levels of the variable input.
3. What is the average product of an input?
Average product is defined as the output per unit of variable input we calculate it as :
4. What is the marginal product of an input?
Marginal product of an input is defined as the change in output per unit of change in the input when all other inputs are held constant. When factor 2 is held constant , the marginal product of factor 1 is
5. Explain the concepts of the short run and the long run.
In the short run some of the factors of production cannot be varied and therefore , remain fixed. In the long run , all inputs are variable. The total cost and the total variable cost therefore , coincide in the long run.
6. What is the law of diminishing marginal product?
The law of diminishing marginal product says that if we keep increasing the employment of an input , with other inputs fixed , eventually a point will be reached after which the resulting addition to output (ie, marginal product of that input ) will start falling.
7. What is the law of variable proportion?
The law of variable proportion says that the marginal product of a factor input initially rises with its employment level. But after reaching a certain level of employment it starts falling.
8. When does a production function satisfy constant returns to scale?
Constant returns to scale is a property of production function that holds when a proportional increase in all inputs result in an increase in output by the same proportion.
9. When does a production function satisfy increasing returns to scale?
Increasing returns to scale holds when a proportional increase in all inputs results in an increase in output by more than the proportion.
10. Define Isoquant.
An Isoquant is the set of all possible combination of the two inputs that yield the same maximum possible level of output.
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