question_answer

Define production function. Distinguish between short run and long run production functions.

Or

Define cost. Distinguish between fixed and variable costs. Give one example of each.

Answer:

Production function: Production has been defined as ?transformation of inputs into output?. The physical relationship between inputs and outputs under given technology is called production function.
\[Q=f({{F}_{1,\,}}{{F}_{2..........}}{{F}_{n}})\]
Short?Run Production Function	Long?Run Productions function
Short-run production function is when one factor is varied while all other factors are kept fixed (constant).	Long-run production function is when all factor are varied (changed) in same proportion.
The law which operates here is known as ?law of return to a factor?.	The law which operates in such a situation is known as ?law of returns to scale?.
It leads to changes in level of production.	It leads to the changes in scale of production.
Or
Cost: The sum of explicit cost (cash payments made by firms to outsiders for hiring factor services and buying raw materials) and implicit costs (cost of self?owned and self?supplied inputs) constitute total cost of production of a commodity.
Fixed Cost	Variable Cost
Fixed cost does not increase or decrease with increase or decrease in the level of production.	Variable cost rises or falls with the increaser or decrease in the level of production.
In short period, fixed cost cannot be changed.	In short period variable cost can be changed.
Fixed cost curve is parallel to X-axis.	Variable cost curve is upward sloping.
Fixed cost can never be zero even if the production is stopped.	Variable cost is zero when production is stopped.
Eg. Rent of a building.	Cost of raw material.