Introduction to Theory of Production

Humans perform various activities such as production, consumption, exchange, etc., to meet their needs. Among these human activities, production is the most important. 

Without production, human desires and needs cannot be fulfilled. Furthermore, a country's income can only be increased by increasing production, and only by increasing a country's income can the living standards of all its people be improved.

Therefore, the theory of production holds great importance in economics.

Meaning of Production

In common parlance, production means creating new goods. However, in economics, it has a specific meaning. In economics, production refers to the act of creating utility. In other words, production is an economic activity in which factors of production are transformed into output. For example, to produce biscuits, labor, machines, flour, sugar, etc., are used. 

Biscuits are produced from the combination of all these things. The biscuits produced in this way provide human satisfaction and also have exchange value. To further clarify the meaning of production, the statements of the following economists can be considered.

According to J.R. Hicks: "Production may be defined as any activity, whether physical or mental, which is directed to the satisfaction of other people's wants through exchange."

Similarly, according to Ely, "Production means creation of utility."

Thus, from the definitions of the above economists, it can be concluded that production is a process through which utility is created in goods, and they also have exchange value.

Concepts of Total Production, Average Production, and Marginal Production

Total Production (TP)

The total quantity of goods or services produced by using the available variable factor of production or labor within a specific period is called the total production of the good.

In other words, total production is the sum total of the quantity of goods produced or the marginal production from each unit of the factor of production or labor. It can be expressed symbolically as follows:

TP = ΣMP

Where, 

TP = Total Production 

ΣMP = Sum of Marginal Production

The concept of total production can be clarified from the following table:

Units of Variable Factor of Production or Labor	Total Production (in kg)
1	10
2	30
3	60
4	80
5	90

In the table above, when one unit of the variable factor of production or labor is used, the total production is 10 units. When two units of labor are used, the total production reaches 30 kg. Similarly, as the variable factor of production or labor is increased to 3, 4, and 5 units, the total production increases to 60 kg, 80 kg, and 90 kg, respectively.

Keeping other factors of production constant and increasing the variable factor of production or labor, initially, total production increases at an increasing rate. 

After that, production increases at a decreasing rate, and finally, it starts to decrease. This concept is clarified in the 'Law of Variable Proportions'.

Average Production (AP)

Average production is the output obtained from each unit of the variable factor of production or labor used in the production process. In other words, average production is obtained by dividing the total production by the total units of the variable factor of production or labor. It can be expressed symbolically as follows:

AP = TP / L

Where, 

AP = Average Production 

TP = Total Production 

L = Labor or units of variable factor of production

The concept of average production can be clarified from the following table:

Units of Variable Factor of Production or Labor	Total Production (in kg)	Average Production (in kg)
1	10	10
2	30	15
3	60	20
4	80	20
5	90	18

In the table above, initially, when the variable factor of production or labor is one unit, the total production is equal to 10 kg. Dividing the total production of 10 units by one unit of labor gives an average production of 10 kg. 

Similarly, dividing the total production quantities of 30 kg, 60 kg, 80 kg, and 90 kg by the units of variable factor of production or labor 2, 3, 4, and 5 gives average production of 15 kg, 20 kg, 20 kg, and 18 kg, respectively.

Initially, average production increases up to the third unit of labor. It remains constant at the fourth unit of labor and then starts to decrease.

Marginal Production (MP)

Marginal production is the change in total production due to a one-unit change in the variable factor of production or labor. In other words, marginal production is the ratio of the change in total production to the change in total labor. It can be expressed symbolically as follows:

MP = ΔTP / ΔL

Where, 

MP = Marginal Production 

ΔTP = Change in Total Production 

ΔL = Change in Labor or variable factor of production

The concept of marginal production can be clarified from the following table:

Units of Variable Factor of Production (Labor)	Total Production (kg)	Marginal Production (kg)
1	10	10
2	30	20
3	60	30
4	80	20
5	90	10
6	90	0
7	77	-13

In the table above, the marginal production from the first unit of the variable factor of production or labor is 10 units.

The marginal production from the second unit of labor is 20 kg. Similarly, the marginal production from the third, fourth, and fifth units of labor is 30 kg, 20 kg, and 10 kg, respectively.

Marginal production is increasing up to the third unit of labor. After that, it starts to decrease, reaches zero and even becomes negative.