Livestock Economics, Marketing and Business Management

DECREASING RETURNS PRODUCTION FUNCTION OR INCREASING COST

• “If increasing amounts of one input are added to a production process while all other inputs are kept constant, the amount of output added per unit of variable input will eventually start decreasing”.
• In this type each additional unit of input add less and less to the total product than the previous unit. Diminishing marginal product exist.
• This function exists in almost every practical situation in livestock production. .(Value of one unit of input Rs 500) (Click here to view graph)

Example

No. of units of Input (X)	Total output (Y)	∆ X	∆ Y	MP ( ∆ Y/ ∆ X)	Average Variable cost =Unit variable cost /AP
0	50	-	-	-
10	140	10	90	9	500/14 =35.17
20	210	10	70	7	500/10.5 =47.62
30	260	10	50	5	500/8.6 = 58.14
40	300	10	40	4	500/7.5 =66.67
50	330	10	30	3	500/6.7 =74.63
60	350	10	20	1	500/5.9 =84.75

Elasticity of production

• Elasticity of production can be defined as the percentage change in output in response to the percentage change in input.

• A production function with an elasticity of 1 indicate constant returns and the elasticity of more than one and less than one imply increasing and diminishing returns, respectively.