5.2 Periods of Production

Описание: Production Period Classification
Production Period Classification
• Based on economic resource flexibility.
• Considers business environment changes.
• Considers products consuming resources.
Short Run Period
• Involves fixed inputs and variable inputs.
• Increase in output can be achieved by increasing variable inputs like labor and raw material.
Long Run Period
• Involves all inputs being variable or no fixed resource.
• Allows for changes in plant size or factory building.
• All factors are variable in the long run.
Note: Short run and long run refer to the economic arrangement of inputs in response to changing economic environment.

Total Product, Average Product and Marginal Product
Productivity Measurements in Production
Total Product (TP)
• The overall output produced by the factors of production employed over a given period.
• Expresses in terms of Quantity (Q).
• A firm obtains its total product by using a combination of variable inputs with specific amount of fixed inputs.
Average Product (AP)
• A firm’s average product is obtained by dividing the total output by the number of workers employed(Labor).
AP=𝐴𝑃/𝐿, L=Labor
• AP is a good indicator of the productivity of labor.
Productivity Indicator
• Average product measures labor productivity.
• Productivity measures output per unit input.
• Output ratio varies for each input level and output level.

Relationship between MP and AP:
When MP greate AP, this means that AP is rising,
When MP = AP, this means that AP is the maximum,
When MP less AP, this means that AP is falling
When MP curve lies above the AP curve, and the AP curve is a positively sloping curve, the AP rises
When the MP curve intersects the AP curve, AP is at its maximum,
When the MP curve lies below the AP curve, the AP curve slopes downward
Relationship between TP and MP:
When TP increases at an increasing rate, marginal product increases,
While TP increases at a diminishing rate, MP declines,
When the total product reaches its maximum, the marginal product becomes zero,
When TP begins to decline, MP becomes negative.

Activity 5.2
1. Differentiate among Total Product, Average Product and Marginal Product
2. Elaborate the concepts of fixed and variable inputs in relation to short-run and
long-run production functions by giving a practical example in your locality

1. Total Product refers to the total amount of output produced by a given level of input in the production process. Average Product is the total output produced per unit of input used, while Marginal Product is the additional output produced by adding one more unit of input. In essence, Total Product is the sum of all output produced, Average Product is the average output per unit of input, and Marginal Product is the change in output resulting from a change in input.
2. In the context of short-run and long-run production functions, fixed inputs are inputs that cannot be easily changed in the short-run, such as capital equipment or factory space. Variable inputs, on the other hand, are inputs that can be adjusted in the short-run, such as labor.
For example, in a bakery in your locality, the fixed inputs may include the oven, display cases, and tables, as these cannot be easily changed in the short-run. However, the variable inputs may include the amount of flour, sugar, and butter used in baking the goods, which can be adjusted in the short-run based on demand.
In the long-run, the bakery may have the flexibility to increase or decrease the size of their production facility, allowing them to adjust their fixed inputs accordingly. This would impact their overall production function and output levels in the long-run.g