Three regions of production function

• The classic production function can be divided into three parts, stages, regions and zones, each important from standpoint of decision making on efficient resource use.
• Input – output relationships showing total, average and marginal productivity can be divided into three regions in such a manner that one can locate the portion of the production function in which production decisions are rational.
• A terminology suggests that a farm manager would never choose levels of input use within two regions (1st and 3rd ) unless the behavior was irrational.
• Irrational behavior describes a farmer who chooses a goal inconsistent with the maximization of net returns or profits.

Region I (Irrational Zone):

• This is the zone of underutilization of resources.
• Elasticity of production in region first is more than one because MP is greater than AP.
• E_p> 1 because MP> AP.
• Tp increase at increasing rate upto point of inflection (Mp highest) and then at constant rate.
• Although the Mp is greater, farmer would lose money If operation is continued in this region because TFc> TVp.

Region III (Irrational zone)

• Here, there is overutilization of resources.
• Ep<0 because Mp< Ap and Mp is negative.
• Additional use of inputs give rise to decrease in total production.
• Farmer will go on double loss if operation continues because of reduced total production and unnecessary additional costs of inputs.

Region II ( Rational or economic region of production)

• Here, there is optimum utilization of resources.
• Elasticity of production ranges between 0 to 1.
• Both MP and AP are decreasing but still positive in this zone.
• At the end of this zone, MP= 0, TP becomes maximum. Hence called rational zone.
• Output could be increased and the costs reduced by reducing the level of input use.
• The farmer would always make greater net returns by reducing the use of inputs such that he or she was operation instead in stage II.