Lecture 3: Factor-Product, Factor-Factor and Product-Product Relationship (F-P, F-F and P-P)

F-F : A producer may have to use one or more inputs to produce one or more outputs. It is not only the right kinds of inputs but also their optimum level of use which will help to minimize the cost of production without compromising on the level of output. Factor-Factor relationship is typically a question of identifying the optimum or least-cost combination of resources to produce a certain amount of output. Minimisation of cost of production depends on the cost of inputs, price of outputs and on the marginal rate of substitution of factors. Isoquant or Iso-product curves show all possible combination of two inputs which would yield the same level of output. Similarly Isoquants may be traced for different levels of output.

Product-product relationship: The farmers have limited resources and have a number of enterprises/or enterprise combinations of crops and livestock to choose from. So the question is: How much of what to produce and with what technology. In other words, what combination of enterprises should be produced?