Production function indicates the maximum amount of commodity ‘X’ to be produced from various combinations of input factors.
Production
Function
Production function indicates the
maximum amount of commodity ‘X’ to be produced from various combinations of
input factors. It decides on the maximum output to be produced from a given
level of input, and how much minimum input can be used to get the desired level
of output. The production function assumes that the state of technology is
fixed. If there is a change in technology then there would be change in
production function.
Q = f
(Land, Labour, Capital, Organization) Q = f (L,
L, C, O) The production manager’s
responsibility is that of identifying the right combination of inputs for the
decided quantity of output. As a manager ,he has to know the price of the input
factors and the budget allocation of the organization. The major objective of
any business organization is maximizing the output with minimum cost. To
achieve the maximum output the firm has to utilize the input factors
efficiently. In the long run, without increasing the fixed factors it is not
possible to achieve the goal. Therefore it is necessary to understand the
relationship between the input and output in any production process in the
short and long run. Cobb Douglas Production Function:
This is a function that defines
the maximum amount of output that can be produced with a given level of inputs.
Let us assume that all input factors of production can be grouped into two
categories such as labour (L)
and capital (K).The general
equilibrium for the production function is Q = f (K, L)
There are various functional
forms available to describe production. In general Cobb-Douglas production
function (Quadratic equation) is widely used
Q = the
maximum rate of output for a given rate of capital (K) and labour (L).
Short Run Production Function:
In the short run, some inputs
(land, capital) are fixed in quantity. The output depends on how much of other
variable inputs are used. For example if we change the variable input namely
(labour) the production function shows how much output changes when more labour
is used. In the short run producers are faced with the problem that some input
factors are fixed. The firms can make the workers work for longer hours and
also can buy more raw materials. In that case, labour and raw material are
considered as variable input factors. But the number of machines and the size
of the building are fixed. Therefore it has its own constraints in producing
more goods.
In the long run all input factors
are variable. The producer can appoint more workers, purchase more machines and
use more raw materials. Initially output per worker will increase up to an
extent. This is known as the Law of
Diminishing Returns or the Law of
Variable Proportion. To
understand the law of diminishing returns it is essential to know the basic concepts of production. Tags : Managerial Economics - Production Analysis
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