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10.Define fixed input and variable input of production.

Term fixed inputDefinition: An input in the production of goods and servicesthat does not change in the short run. A fixed input should be compared with avariable input, an input that DOES change in the short run. Fixed and variable

inputs are most important for the analysis of short-run production by a firm. Thebest example of a fixed input is the factory, building, equipment, or other capitalused in production. The comparable example of a variable input would then bethe labor or workers who work in the factory or operate the equipment. In theshort run (such as a day or so) a firm can vary the quantity of labor, but thequantity of capital is fixed.

A fixed input is a resource or factor ofproduction which cannot be changed in theshort run by a firm as it seeks to change the quantity of output produced. Mostfirms have several fixed inputs in short-run production, especially buildings,equipment, and land. However, in the analysis of short-run production, a great

deal of insight is achieved by focusing on the fixed role ofcapital.Term variable inputDefinitionAn input whose quantity can be changed in the time period under consideration.This usually goes by the shorter term fixed input and should be immediatelycompared and contrasted with fixed factor of production, which goes by theshorter term fixed input. The most common example of a variable factor ofproduction is labor. A variable factor of production provides the extra inputs that afirm needs to expand short-run production. In contrast, a fixed factor ofproduction, like capital, provides the capacity constraint in Term variable inputDefinitionproduction. As larger quantities of a variable factor of production, like labor, are

added to a fixed factor of production like capital, the variable factor of productionbecomes less productive.A variable input is a resource or factor of production which can be changed in theshortrun by a firm as it seeks to change the quantity of output produced. Most firmsuse several variable inputs in short-run production, especially labor, materialinputs, and energy. However, in the analysis of short-run production, a great dealof insight is achieved by focusing on the variable use of labor.

Relationship between quantity of output and unit of input:Fixed input does not create any notable change in the quantity of output.Fixed

input is unaffected by any variation in the quantity of output. Whereas, variableinput affect greatly in the amount of output. Quantity of output varies with theunits of variable input.A graph is shown below to present that fact-

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The graph depicts that from the origin to point A, the firm is experiencingincreasing returns to variable inputs: As additional inputs are employed, outputincreases at an increasing rate. Both marginal physical product (MPP, thederivative of the production function) and average physical product (APP, theratio of output to the variable input) are rising. The inflection point A defines thepoint beyond which there are diminishing marginal returns, as can be seen fromthe declining MPP curve beyond point X. From point A to point C, the firm isexperiencing positive but decreasing marginal returns to the variable input. Asadditional units of the input are employed, output increases but at a decreasingrate. Point B is the point beyond which there are diminishing average returns, asshown by the declining slope of the average physical product curve (APP)

beyond point Y. Point B is just tangent to the steepest ray from the origin hencethe average physical product is at a maximum. In point C or Stage 3, too muchvariable input is being used relative to the available fixed inputs: variable inputsare over-utilized in the sense that their presence on the margin obstructs theproduction process rather than enhancing it. The output per unit of both the fixedand the variable input declines throughout this stage. At the boundary betweenstage 2 and stage 3, the highest possible output is being obtained from the fixedinput.

http://en.wikipedia.org/wiki/Marginal_physical_producthttp://en.wikipedia.org/wiki/Marginal_physical_product

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EXPLAIN THE CONCEPT OF PRODUCTION FUNCTION?

PRODUCTION FUNCTION:

production function, in economics, equation that expresses the relationship between the

quantities of productive factors (such as labour and capital) used and the amount ofproduct obtained. It states the amount of product that can be obtained from every

combination of factors, assuming that the most efficient available methods of production

are used.

However much of a commodity a business firm produces, it endeavours to produce it ascheaply as possible. Taking the quality of the product and the prices of the productive

factors as given, which is the usual situation, the firms task is to determine the cheapest

combination offactors of production that can produce the desired output. This task is bestunderstood in terms of what is called theproduction function, i.e., an equation that

expresses the relationship between the quantities of factors employed and the amount of

product obtained.

According to Paul A. SamuelsonProduction function specifies the maximum output that can be produced with a given

quantity of inputs. It is defined for a given state of engineering and technical knowledge.

A production function provides an abstract mathematical representation of the relation

between the production of a good and the inputs used. A production function is usually

expressed in this general form:Q = f(L, K)

where: Q = quantity of production or output, L = quantity oflaborinput, and K = quantityofcapital input. The letter "f" indicates a generic, as of yet unspecified, functional

equation.

The analysis ofshort-run production is commonly performed at the introductory levelwith simple tables and graphs. These are useful abstraction methods for isolating and

analyzing key aspects of short-run production. However, mathematical equations are

another, often more powerful, method of abstract analysis. This is where the production

function comes into play. Because a mathematical equation can extend beyond the two

dimensions of a graph, it is possible to consider relations beyond just that for a variableinput and total production.

If the production function takes the form of a specific equation (such as Q = 5L + 10K +

2LK), then a total product curve relating total product and the variable input can beplotted. However, to do so, one of the two inputs (L or K) must be designated as a

variable input and one designated as a fixed input. For most types of production, labor is

more readily changed than capital, so L is generally the variable input and K is usually

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the fixed input. A short-run total product curve can then be derived by "fixing" K at a

particular value, then plotting the values of Q for alternative values of L.

While a great deal of economic insight into short-run production decisions of a firm andmarket supply curves can be analyzed with a simple graph, when economists begin using

mathematical equations, such as the production function, Q = f(L, K), the possibilities arealmost unlimited. A wide assortment of additional input variables can be added to this

equation to make it, not only more sophisticated, but also more revealing

Graphical presentation of law of diminishing marginal returnIn this figuire,oq represent the units of variable inputs per period of time.OTP representthe total product.TP is the total product curve.With the increase of the units of variable

inputs total product increases at a decreasing rate,goes to maximum and then decline.

In the below figuire MR is the marginal return.From the origin, through points A, B, and

C, the production function is rising, indicating that as additional units of inputs are used,

the quantity of output also increases. Beyond point C, the employment of additional unitsof inputs produces no additional output (in fact, total output starts to decline); the variable

input is being used too intensively. With too much variable input use relative to the

available fixed inputs, the company is experiencing negative marginal returns to variable

inputs, and diminishing total returns. In the diagram this is illustrated by the negativemarginal product curve (MP) beyond point Z, and the declining production function

beyond point C.

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