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Production function
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PRODUCTION AND
PRODUCTION FUNCTION
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DEFINITIONS:
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FACTORS AFFECTING
PRODUCTION FUNCTION 1.
3.
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2.
Technology
Inputs Land, labour, capital, entrepreneur
Inputs are divided into fixed and variable
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ASSUMPTIONS
1.
3.
4.
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2.
AP
MP
Stage
Ist stage
12
16
18
3.6
18
14
-4
-6
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No of
workers
IInd Stage
IIIrd stage
10
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11
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STAGE 2
STAGE 1
STAGE 3
TP
OUTPUT
AP
12
MP
STAGES
1.
2.
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Stage -1
(IRRATIONAL)
TP increases at an
increasing rate
MP also rises
AP also increases but
lies below MP
Indivisible fixed
factors
Division of labour &
specialization
Stage II (RATIONAL)
MP falls-Becomes zero
1.
13
STAGES CONTD..
1.
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Stage-III
(IRRATIONAL)
TP starts declining
MP becomes negative
AP also diminish
Excess variable factor
with fixed factors
Universality of law-
Operates in agriculture
14
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15