The production function is relationship between

Production function - Wikipedia

the production function is relationship between

Read this article to learn about production function with example! There exists some relationship between inputs and output of a firm. In Economics, such a. Answer to A production function is a relationship between inputs and a. quantity of output. b. revenue. c. costs. d. profit. A production function shows the quantity of output we obtain from quantities of inputs. The production functions for some products require one, specific mix of.

However, the average product of fixed inputs not shown is still rising, because output is rising while fixed input usage is constant. In this stage, the employment of additional variable inputs increases the output per unit of fixed input but decreases the output per unit of the variable input. In Stage 3, too much variable input is being used relative to the available fixed inputs: The output per unit of both the fixed and the variable input declines throughout this stage.

At the boundary between stage 2 and stage 3, the highest possible output is being obtained from the fixed input. Shifting a production function[ edit ] By definition, in the long run the firm can change its scale of operations by adjusting the level of inputs that are fixed in the short run, thereby shifting the production function upward as plotted against the variable input.

If fixed inputs are lumpy, adjustments to the scale of operations may be more significant than what is required to merely balance production capacity with demand. For example, you may only need to increase production by million units per year to keep up with demand, but the production equipment upgrades that are available may involve increasing productive capacity by 2 million units per year.

Shifting a production function If a firm is operating at a profit-maximizing level in stage one, it might, in the long run, choose to reduce its scale of operations by selling capital equipment. By reducing the amount of fixed capital inputs, the production function will shift down. The beginning of stage 2 shifts from B1 to B2.

The unchanged profit-maximizing output level will now be in stage 2.

the production function is relationship between

Homogeneous and homothetic production functions[ edit ] There are two special classes of production functions that are often analyzed.

Therefore, the producer combines all the four factors of production in a technical proportion.

the production function is relationship between

The aim of the producer is to maximize his profit. For this sake, he decides to maximize the production at minimum cost by means of the best combination of factors of production. The producer secures the best combination by applying the principles of equi-marginal returns and substitution.

According to the principle of equi-marginal returns, any producer can have maximum production only when the marginal returns of all the factors of production are equal to one another.

Production Function: Relation between Physical Inputs and Output of a Good

For instance, when the marginal product of the land is equal to that of labour, capital and organisation, the production becomes maximum. Meaning of Production Function: In simple words, production function refers to the functional relationship between the quantity of a good produced output and factors of production inputs. Watson In this way, production function reflects how much output we can expect if we have so much of labour and so much of capital as well as of labour etc.

In other words, we can say that production function is an indicator of the physical relationship between the inputs and output of a firm. The reason behind physical relationship is that money prices do not appear in it.

Production functions

However, here one thing that becomes most important to quote is that like demand function a production function is for a definite period. It shows the flow of inputs resulting into a flow of output during some time. The production function of a firm depends on the state of technology.

  • Production Function: Relation between Physical Inputs and Output of a Good
  • Production function

With every development in technology the production function of the firm undergoes a change. The new production function brought about by developing technology displays same inputs and more output or the same output with lesser inputs. Sometimes a new production function of the firm may be adverse as it takes more inputs to produce the same output. Mathematically, such a basic relationship between inputs and outputs may be expressed as: Hence, the level of output Qdepends on the quantities of different inputs L, C, N available to the firm.