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Saturday, 1 September 2018

Production function

Before understanding differences between short run and long run production function, let me talk about production function first. As a producer we always want to know that what inputs are required to produce desired output. Here we talk about major inputs called as factor of production; Land, labour, capital and entrepreneur.

Production function
Production Function

If you want to produce 100 units of a commodity and required inputs are 20 labour and 10 capital then this relationship between output and input will be expressed as

100x = f ( 20L, 10K)   ( production function)

Here L is labour and K is capital. For the study of production function these two inputs are taken.

In short run production function K is considered a fixed factor and expressed by putting a bar above.

Now let us talk about fixed factor and variable factor. Fixed factor does not change with the output level. If you are producing nothing or 100 units , fixed factor will be same. E.g. Machine. Variable factor on the other hand changes with the output. It increases when output increases and vice versa.

But this difference between fixed and variable factor proves true only in case when it is a very short period of time in which producer cannot change its fixed factor. In other words difference between these two factors remains only in short run.

Let me tell you about long run now. Long run is a time period that is enough to change fixed factor for a producer. In this time period both factors are variable.

Further, there are three vital differences between short run and long run production function:

  1. In short run, output can be increase only by increasing variable factor and in long run output can be increased by increasing both factors.
  2. Ratio between factors in short run tends to change but in long run ratio does not change.
  3. Short run is known as “ return to factor” and long run is known as “ return to scale”.

Return to factor means output is obtained by only the application of variable factor.output is increased or decreased with the help of variable factor.

Return to scale means that output is increased with the help of fixed factor also.This is related with expansion of output.

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