PRODUCTION

FUNCTION
PRESENTATION BY : NANDJOUN DJOGO RAPHAEL LANDRY
HALLEGRA FIONA
PAUL FOKAM
KUATE MATHIEU
AMBASSA MIGUEL
TAMATCH KENNETH
CHI NOEL
TOPICS
LECTURER: DR. ALI
PKFOKAM INTITUTE OF EXCELLENCE 1. Fixed inputs
2. Variable Inputs
3. Short run diminishing returns
4. Long Run
INTRODUCTION

• Definition: Production function refers to a mathematical model in

Microeconomics that describes the relationship between inputs a firm
uses such as labour, materials and machinery-and the maximum
output it can produce with those inputs over a period of time.

• Example: Imagine a coffee shop in Emana. The production function

will show how the shop combines resources like coffee beans, baristas
and coffee machines to produce a certain number of cups of coffee
each day.
WHY DO WE STUDY PRODUCTION
FUNCTION IN ECONOMICS
.1 Optimal Resource Allocation
2. Decision Making in short run and long run
3. Understanding Diminishing returns
4. Pricing and cost analysis
5. Policy and Economic Implication
I. FORMULAR FOR PRODUCTION FUNCTION

The production Formular is given by

Q= F(L,K)
Where
Q= Quantity of output produced
L= Labour
K= Capital
F= Functional relationship between inputs and output
FIXED INPUTS

• Definition: Fixed inputs refer to resources whose quantity cannot

easily be changed in the short run. They remain constant regardless of
the level of output

• Example: In a restaurant, examples of fixed inputs include, the

building, kitchen equipment(like ovens and refrigerators), and furniture.
Whether the restaurant serves 50 or 150 customers, these inputs
remain the same in the long run.
• Why it matters: Fixed inputs limit production capacity in the short
run, as they cannot be quickly adjusted to respond to changes in
demand.
VARIABLE INPUT

• Definition: Variable inputs are resources that can be adjusted quickly

and easily to change the level of production.
• Example: In the same restaurant, variable inputs include
ingredients( such as flour, vegetables and meat) and labour(the
number of chefs or servers). These inputs can be increased or
decreased based on the number of customers served each day.
• Why it matters: Variable inputs allow a business to be flexible and
respond to fluctuations in demand, enabling them to increase or
decrease output as needed.
KEY DIFFERENCES BETWEEN FIXED INPUTS
AND VARIABLE INPUTS
• Fixed Inputs
• Cannot be changed in the short run.
• Examples: buildings, land, large machinery.
• Cost: Fixed costs (remain constant).
• Variable Inputs
• Can be changed in the short run.
• Examples: labor, raw materials, energy.
• Cost: Variable costs (change with output).
• Key Point: In the long run, all inputs become variable.
 4. SHORT RUN AND DIMINISHING RETURNS

Short Run
•Definition: A period of time during which at least one input of production (factor of production) is fixed.
•Key Characteristics:
•Some inputs are fixed (e.g., factory size, capital equipment).
•Other inputs are variable (e.g., labor, raw materials).
•Firms can adjust output levels by changing variable inputs.
Diminishing Returns
•Definition: A situation where the marginal product of an input declines as more of that input is added, holding other in
•Law of Diminishing Returns: As more and more of a variable input is added to a fixed input, the marginal product o
eventually declines.
•Example: Consider a farm with a fixed amount of land. As more and more workers are added to the land (variable in
per additional worker will eventually decrease.
 SHORT RUN AND DIMINISHING RETURNS

•In the short run, firms can experience diminishing returns as they increase production by adding more variable inputs to
•This leads to a decreasing marginal product of the variable input and a rising marginal cost of production.

•Example: A restaurant with a fixed number of tables may experience diminishing returns as it adds more waiters. Initiall
increases the number of customers served. However, as the number of waiters increases, the marginal benefit of each a
decrease due to overcrowding and inefficiency.
VISUAL REPRSENTATION
• Key Points
• Diminishing returns is a short-run phenomenon.
• It is important for firms to understand diminishing returns to make optimal production decisions.
• By recognizing the point of diminishing returns, firms can avoid overinvesting in variable inputs
and incurring higher costs.
• Additional Notes
• The concept of diminishing returns is closely related to the law of variable proportions.
• Diminishing returns can occur even when the total product is still increasing.
• Understanding diminishing returns helps explain the shape of the short-run production function
and the associated cost curves.
 LONG RUN
•Definition: A period of time long enough for all inputs to be variable.
•Key Characteristics:
• Firms can adjust all factors of production (e.g., plant size, capital
equipment, labor).
• There are no fixed costs in the long run.
• Firms can enter or exit the market freely.
Long-Run Adjustments
In the long run, firms can:
•Expand: Increase their scale of operations by building new plants or expanding
existing ones.
•Contract: Reduce their scale of operations by closing down plants or reducing
production.
•Exit the market: If the industry is unprofitable in the long run.
•Enter the market: If the industry is profitable in the long run.
 LONG RUN COST CURVES

•Long-Run Average Cost (LRAC) Curve: Envelopes the minimum points of all the short-run average cost (SRAC) curv
•Economies of Scale: As a firm increases its scale of production, its average cost decreases due to factors like special
efficient use of resources.
•Diseconomies of Scale: Beyond a certain point, as a firm continues to grow, its average cost may start to increase du
difficulties, coordination problems, and bureaucracy.
VISUAL REPRESENTATION
• Key Points
• The long run is a planning horizon for firms.
• In the long run, firms can achieve optimal scale and efficiency.
• The shape of the LRAC curve depends on the presence of economies and diseconomies of scale.
• Additional Notes
• The concept of the long run is important for understanding industry structure and market dynamics.
• The long-run equilibrium of a perfectly competitive market is characterized by zero economic profit.
• In the long run, firms can adjust their production levels to maximize profits.
• By understanding the long run, economists can analyze how firms respond to changes in market
conditions and how industries evolve over time.
CONCLUSION

• In summary, the production function is essential for understanding how

businesses make decisions regarding resource use. Fixed and variable
inputs shape production capabilities in the short run, while the
flexibility to adjust all inputs in the long run allows firms to grow
efficiently or, in some cases, face challenges with increasing scale.
THANK YOU FOR YOUR ATTENTION

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