Answer to Question #204402 in Microeconomics for Rea

Question

Assume labor (L) is the only variable input used in the production process, a firm’s production

function is given by 2 3 Q  7L 10 L  L where Q represents total product.

Classify the production function in to the three stages of production.

Answer 1

Production refers to the process in which the output is produced using the factors of productions.

Factors of production refer to the inputs or raw materials. There are mainly fours factors of production:

• Labor
• Capital
• Land 
• Entrepreneurship

There are two kinds of input factors:

Variable factors: Those factors that depend on the level of output.

Fixed factors: Those factors that do not depend on the level of output.

The law of variable proportional refers to the increased output when the more and more variable factors are used with fixed factors, initially output increases at an increasing rate which means increasing marginal product, after a point output starts to increase at a decreasing rate, which means marginal product starts to decline but remains positive and eventually, the output starts to decline when additional variable factors are added with fixed factors and the marginal product becomes negative.

Here, with the given production there are three stages of production:

1. When output increases at an increasing rate
2. When output increases at a decreasing rate
3. When output tends to decline

In the given production: 

First stage: When labor is used up to 4 units, output increases at an increasing rate, and the marginal product is increasing.

2nd stage: When more than 4 units and up to 7 units of labor units are used, output increases at a decreasing rate and the marginal product is decreasing.

 3rd stage: When more than 8 units of labor are used, the output starts to decline and the marginal product is negative.