Production Function and the Law of Returns

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Production Function and the Law of Returns: The relation between input and output is called the production function: Q = f (L, K) It states that the output produced (Q) is functionally dependent on the units of input: labor (L) and capital (K). Though in the simplified form of the function, only two inputs have been shown, the relation can be extended to a range of input quantities and qualities. Labor (L) in general symbolizes all types of human services utilized in productive activity. Similarly capital (K) symbolizes different types of material or physical agents of production. Production Units Fixed Input Units Variable Input Units Total Output Output Marginal 1 1 - - - 2 1 1 4 4 3 1 2 11 7 IMR 4 1 3 18 7 CMR 5 1 4 23 5 6 1 5 25 2 7 1 6 26 1 In the example given above the complete

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Unformatted text preview: picture of production function or the process of productive activity has been presented. The entire process is carried out in 7 different units. The first unit has fixed inputs but no variable inputs; so no output is produced . In the second unit one dose or unit of variable input is applied and the output produced is 4 units. For the third production unit the second unit of variable input is applied and the output is more than double. It has increased from 4 to 11. Marginal output is 7 (11 - 4 = 7) units. For production unit 4, the third unit of variable input is applied and the output increases to 18 units. Marginal output is again 7 units (18 - 11 = 7)....
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