Therefore, the level of output Q depends on the amount of different inputs L, C, N available to the firm. In the simplest case, where there are only two inputs, labor L and capital C and one output Q , becomes a production function.
As long as the natural laws of technology remain unchanged, the production function remains unchanged. George J. Richard J. This is a technological relation showing for a given state of technological knowledge how much can be produced with given amounts of inputs.
Thus, from the above definitions, we can conclude that the production function reflects the relationship between the physical quantity of inputs and outputs obtained over a period of time, for a certain state of technical knowledge. The main features of production function are as follows : —. CES production function. A function showing the maximum output possible with any given set of inputs.
The expression of production possibilities by a production function assumes that inputs are used efficiently, so the production function is the upper boundary of the production set. These conditions are frequently imposed in models since they imply a positive quantity of every input is used whenever input prices are finite.
From: production function in A Dictionary of Economics ». Subjects: Social sciences — Economics. View all related items in Oxford Reference ». The factors of production are also complementary to one another, that is, the two or more inputs are to be used together as nothing will be produced if the quantity of either of the inputs used in the production process is zero. The principles of returns to scale is another manifestation of complementarity of inputs as it reveals that the quantity of all inputs are to be increased simultaneously in order to attain a higher scale of total output.
It reveals that the inputs are specific to the production of a particular product. The specificity may not be complete as factors may be used for production of other commodities too.
This reveals that in the production process none of the factors can be ignored and in some cases ignorance to even slightest extent is not possible if the factors are perfectly specific.
Production involves time; hence, the way the inputs are combined is determined to a large extent by the time period under consideration. The greater the time period, the greater the freedom the producer has to vary the quantities of various inputs used in the production process.
In the production function, variation in total output by varying the quantities of all inputs is possible only in the long run whereas the variation in total output by varying the quantity of single input may be possible even in the short run. Article Shared by. Related Articles. Law of Variable Proportions With Diagrams. We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits.
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A production function relates the input of factors of production to the output of goods. In the basic production function inputs are typically capital and labor, though more expansive and complex production functions may include other variables such as land or natural resources.
Output may be any consumer good produced by a firm. Cars, clothing, sandwiches, and toys are all examples of output. Capital refers to the material objects necessary for production. Machinery, factory space, and tools are all types of capital. When looking at the production function in the short run, therefore, capital will be a constant rather than a variable.
Although in reality a firm may own the capital that it uses, economists typically refer to the ongoing cost of employing capital as the rental rate because the opportunity cost of employing capital is the income that a firm could receive by renting it out.
Thus, the price of capital is the rental rate. Capital Goods : Capital equipment, like these motor graders, can vary in the long run but are fixed in the short run. Labor refers to the human work that goes into production.
Typically economists assume that labor is a variable factor of production; it can be increased or decreased in the short run in order to produce more or less output. The price of labor is the prevailing wage rate, since wages are the cost of hiring an additional unit of capital.
The marginal product of an input is the amount of output that is gained by using one additional unit of that input. It can be found by taking the derivative of the production function in terms of the relevant input. Inputs are typically subject to the law of diminishing returns: as the amount of one factor of production increases, after a certain point the marginal product of that factor declines. Privacy Policy. Skip to main content. Search for:. The Production Function.
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