Production: Concept of Production Function and Different Technologies of Production (For CBSE, ICSE, IAS, NET, NRA 2022)

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Production is the result of the combined efforts of the four factors of production -land, labour, capital and entrepreneurship. These are also called inputs or resources. The relationship between inputs and output holds the key to optimum use of resources, producing maximum level of output possible and increasing the level of output etc.

Concept of Production Function

  • Production is defined as transformation of inputs into output. The resources used in production are called inputs and the goods and services produced are called output.
  • For example, for the production of an output called rice, we require inputs such as agricultural land, seeds, fertilizers, plough, water, pesticides, diesel to run tractor etc.
  • Production function tells us the technical relationship between inputs and output of a firm. It tells us the maximum quantity of output that can be produced with the help of given quantities of inputs.
  • Technology or method of production refers to the ratio in which inputs are combined to produce output. So, the production function is also defined as ‘a technological relationship that tells us the maximum output producible from various combinations of inputs.’

Different Technologies of Production

Goods and services can be produced in more than one way. For example, the production of cloth can be made either with the help of handloom or with the help of power loom. The first one is labour intensive technology of production and the second one is capital intensive technology of production.

technology of production can be of the following two types:

Labour Intensive Technology
  • Labour Intensive Technology: When we make more use of labour and less use of capital per unit of output in the production of our commodity that is called labour intensive technology. This type of technology is used in household enterprises and in the enterprises, which make production for self-consumption or in case of small-scale production.
  • Capital Intensive Technology: When we make more use of capital and less use of labour per unit output in the production of our commodity that is called capital intensive technology of production. This type of technology is used when the production is made on a large scale for sale in the market in order to earn profit. Another aspect of organizing the production activity is division of labour. Division of labour increases the efficiency of workers due to which large scale production becomes possible. Division of labour means splitting up of the production activity into many processes and assigning every process among different workers according to their aptitude and ability.

Division of labour is of the following two types:

  • Product based division of labour: If a worker specializes in the production of a single good or service, it is called product-based division of labour. It is very common in household enterprises of developing countries like India. When the production is made for self-consumption or on a small scale there is the use of product-based division of labour. For example, most of the farmers in our country make production of food grains mainly for self-consumption. All of them make use of product-based division of labour
  • Process Based Division of labour: In big production units like corporations and government enterprises where the production is made on a very large scale, there is the use of process-based division of labour. In case of process-based division of labour, the production of a commodity is divided into many processes and a worker specializes in one or two processes, that is called process-based division of labour. For example, Britannia Bread Company manufactures bread. Raw material for bread is wheat flour. Conversion of wheat flour into bread requires three or four processes. The flour has to be converted into dough and dough has to be kept into containers for baking. Containers are kept in ovens for baking. The baked bread is cut into appropriate size and packed. All processes required in manufacturing of bread are undertaken by different workers and nobody can claim that he has manufactured the bread. He can say that he has performed one or two processes in the preparation of the bread. Division of labour increases the efficiency of workers and lead to the possibility of inventions and discoveries because of repetitive nature of work. It encourages the use of machines in place of manual labour. It also leads to the use of capital-intensive technique of production.

Total Product, Average Product and Marginal Product

There are mainly three concepts relating to production of a commodity:

  • Total Product (TP) : TP refers to the total quantity of output of a commodity at a particular level of employment of an input, say labour, when the employment of all other inputs is unchanged. TP can be increased or decreased by increasing or decreasing the units of labour. So, amount of TP directly depends upon amount of labour employed. Because it can be changed, labour is called variable factor.
  • Average Product (AP) : AP is the output per unit of a variable input, say labour. It can be obtained by dividing TP by the number of units of a variable factor. AP = TP/L. where L is the number of units of labour input.
  • Marginal Product (MP) : MP may be defined as increase or decrease in TP resulted due to addition of one extra unit of labour, keeping all other inputs unchanged. In order to increase output or TP we have to increase the employment of labour by 1 or more number of units. The smallest number by which labour can be increased is 1. Since ‘marginal’ means very small, accordingly we can say that MP is the output contributed by the last unit of labour. So, we can write, MP = TPL – TPL – 1.

Example One labourer works with a sewing machine to stitch two shirts. Another labourer joins and the two could stitch 6 shirts. Calculate MP?

Ans: MP = TP2 – TP2 – 1 = TP2 – TP1 = 6 – 2 = 4

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