3.2.2. Types of production functions

3.2.2. Types of production functions

In any production process, three types of production functions could be observed. They include cases of : (i) increasing returns; (ii) constant returns and (iii) decreasing returns. The case of increasing returns is seen in stage I in which the average product is at its maximum. As the marginal product is higher than the average product in stage I, the producer would continue to add the inputs as long as the average product is increasing. Diminishing returns is seen in stage III in which the total product is declining further and the marginal product or the amount of product added by additional units of input is negative. The region is therefore called irrational region as the producer stands to lose while operating in this stage. In the case of constant returns, the amount of product increases by the same amount for each additional unit of input. The stage II is called the rational region as the production becomes most profitable here. The total produce is increasing, the marginal product is decreasing, positive and is less than the average product which also declines. Fish producers aiming at income maximisation should attempt to find the production function of the process they follow in the stage II.

Last modified: Wednesday, 21 December 2011, 10:55 AM