Short Period Analysis of Production/Law of Variable Proportion:
The short run is a period of time in
which only one input (say labor) is allowed to vary while other
inputs land and capital are held fixed. In the short run,
therefore, production can be increased with one variable factor
and other factors remaining constant. In the short run, the
law of
variable proportion governs the production behavior of a
firm.
The law of variable proportion shows the direction and
rate of change in the output of firm when the amount of only one
factor of production is varied while other factor of production
are held constant.
The law of variable proportion passes mainly
through two phases:
(i) Increasing returns.
(ii) Diminishing
returns.
Technical Efficient Combination:
Production
function establishes a physical relationship between output
and inputs. It describes what is technical feasible when the
firm uses each combination of input. The firm can obtain a given
level of output by using more labor and less capital or more
capital and less labor. Production function describes the
maximum output feasible for a given set of inputs in technical
efficient manner.
Production Function takes Quantities
of Inputs:
It is imperative to note that
production function does not take unto account the prices of
input or of the output. It simply takes into account the
quantities of inputs which are employed to produce certain
quantities of output.
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