Livestock Economics, Marketing and Business Management

CONSTANT RETURNS PRODUCTION FUNCTION OR CONSTANT COST

• There can be three types of input - output relationships in the production of commodities.
• Nature of the relationship between a single input and a single output can be either of the following or combination of them.

Constant returns production function or constant cost (Click here to view graph)

• In constant returns, each additional unit of variable input produces an equal amount of additional product. i.e., The amount of product increases by the same magnitude for each additional unit of input.
• However, this is not a very common relationship in Animal Husbandry but may be possible in other industries. (Value of each Unit of input Rs. 1500)

Example

No. of units of Input (X)	Total output (Y)	∆ Y	∆ X	MP ( ∆ Y/ ∆ X)	Average Variable cost = Unit variable cost /AP
0		-	-	-
10	500	50	10	5	1500/50 = 300
20	1000	50	10	5	1500/50 = 300
30	1500	50	10	5	1500/50 =300
40	2000	50	10	5	1500/50 =300
50	2500	50	10	5	1500/50 =300

• The table and the graph show that every equal increase in the input results in a constant increase in the output and hence, the given production function is known as a constant marginal returns function giving a straight line production curve (TP curve) which is having the same slope throughout its entire range.