Economic Response To Productive Inputs

Question 1

What is an Input and Production Function?

Answer 1

Inputs are resources used in the production of farm outputs. They are land, labour, capital and management. Production function is a relationship between an output and the inputs used.Production function shows maximum amount of output possible with any given level of input (or combinations of inputs) assuming that the input is used efficiently.

Question 2

What is a Fixed Input?

Answer 2

Fixed inputs: part of the total inputs which do not depend on the level of current output.
Eg: land, yards, farm machinery, sheds.

Question 3

What is a Variable Input?

Answer 3

Variable inputs: part of the total inputs that varies with the level of current output.
Eg: fertilisers, water, drugs, fuel.

Question 4

What is meant by Length Of Run?

Answer 4

Distinctionbetweenfixedandvariableinputsis based on the length of the planning horizon.

Question 5

What is meant by Long Run?

Answer 5

In the long run most fixed inputs become as variable inputs.For example,in the current season(short-run)the amount of land you have is a fixed input but over the long term (long-run) this can be varied.

Question 6

What is meant by Short Run?

Answer 6

Short run refers, technically, to a situation in which some resources are variable while others are fixed.
For example, you can easily apply extra fertiliser, or
work more hours, but adding additional land, or a business, will not be possible in the short run.

Question 7

What is Law Of diminishing returns?

Answer 7

Law of diminishing marginal returns (productivity) is the tendency for successive extra units of any input to a productive process to yield smaller increases in output.

Question 8

What is a Total Physical Product(TPP)?

Answer 8

Total Physical Product
(TPP) curve shows the
relationship between an
input and output, holding
other inputs used in the
•Y axis is the output or total physical product
•X axis is the input
production as constant.
Total Physical Product (TPP) is the total amount of output produced for the given amount of input.

Question 9

What is there Marginal Physical Product?

Answer 9

Marginal Physical Product (MPP) is the addition to the output, measured in physical terms, as the result of an increase in the unit of an input.
As the amount of input increases from zero level, the MPP curve.
classically goes through 4 stages (increases, constant, decreases and then becomes negative)

Question 10

What is the Average Physical Product?

Answer 10

Average Physical Product (APP) is the level of output produced by a farm per unit of input used.
Average Physical Product = TPP/input used.

Question 11

What are the Three Stages Of Production?

Answer 11

With TPP, APP and MPP it is possible to begin to answer what level of inputs should be used.
• There are three stages of production:
Stage 1 = irrational Stage 2 = rational Stage 3 = irrational

Question 12

What is Stage One?

Answer 12

It is irrational to operate in stage one as a single unit of input will increase the APP and TPP
TPP rising APP rising
Ends when MPP falls below APP
Irrational zone of production

Question 13

What is Stage Two?

Answer 13

TPP is rising but the APP is falling. Profit maximising input use level occurs in stage 2
TPP is rising APP is falling MPP is falling.
Ends when MPP fall below zero
Rational zone of production

Question 14

What is Stage Three?

Answer 14

Begins where TPP peaks
Additional inputs
reduce the TPP APP is falling MPP is negative
Irrational zone of production

Question 15

What is the Economic Optimal Level Of Input Use?

Answer 15

Stage 2:
• Lower limit point is the input rate that maximizes the APP.
• Upper limit point is the input rate that maximizes the TPP.
• The economic optimal level of input use, that is for the maximum economic efficiency, is located within the Stage 2 of the production function (rational zone).
• The decision requires also the cost of the input and the value of the output, discussed further under the section of “the demand for inputs”.

Question 16

What Is the Marginal Factor Cost?

Answer 16

Price of the input is Marginal Factor Cost (MFC).

MFC is also called as Marginal Input Cost (MIC).

Question 17

Key Terms

Answer 17

• Inputs (factors of production) and output (product)
• Fixed and variable inputs (agricultural examples!)
• Input + output = Production (production function)
• Short-run and long-run (inputs are fixed in short-run)
• Technology can increase production (productivity) • Law of diminishing marginal return (reasons!)
• Total Physical Product (TPP), Average Physical Product (APP) and Marginal Physical Product (MPP)
• Efficient resource use - three stages of production •(stage 1, stage 2 and stage 3. know their limits!)