Production

Function

by
Balaji K
 Overview
 What is a Production Function
 Importance & Uses of Production Function
 Linear Homogeneous Production Function
 Cobb Douglas Production Function
 Isoquants and its assumptions
 Marginal rate of substitution
 Laws of Production

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Production Function

 Input process output

 Q=fn(a,b,c and d)
 Q=Quantity /output and a,b,c and d are inputs

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Importance of Production Function
 Helps to estimate the level of Production.
 It becomes Isoquants
D

 It helps in the input substitution process
without altering the total output
 Price determination and choosing the
least combination of inputs

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Uses of Production Function

 How to obtain Maximum output

 to determine
 Helps the producers
D

whether employing variable inputs

/costs are profitable
 Highly useful in longrun decisions
 Least cost combination of inputs and
to produce an output

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Table showing Production Function
Input of Labour
I
n
1 2 3 4 5 6
p 6 688 892 1188 1764 1530 1668
u
t 5 276 898
 D
234 556 1390 1188
o 4 226 334 556 688 1435 1345
f

c
3 278 688 335 225 667 556
a
p 2 556 1345 688 444 1123 456
i
t 1 342 876 765 334 234 688
a
l
Output Q per unit of time

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Assumptions
 The production function is related to particular period of
time
 There is no change in technology
 The producer is using the best technique
 Production can be fitted to both short run and the long
run

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Isoquants
 The term isoquants is derived from the words ‘iso’ and
‘quant’.Iso means and quant means quantity

In other words Isoquants are the curves which represent

the different combinations of inputs producing a
particular quantity of output.

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Assumptions of Isoquants
 There are only two factors of Production Viz Labour and
Capital
 Two factors can substitute each other upto a certain
limit.

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Properties of Isoquants
 Always slope downwards from left to right
 Apply MRTS
 Perfect Subsitutes
 Do not intersect each other
 Higher isoquants represents higher outputs

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Isoquants with an Illustration

Combinations Labour(Units) Capital(Units) Output(quintals)

A 1 10 50

B 2 7 50

C 3 4 50

D 4 2 50

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Graphical representation of Isoquants

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Producers Equilibrium

The producer is in equlibrium when he secures

maximum output with the least cost
combination of factors of production.

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Computation of least cost combination
of two inputs

X1 X2 3X1 4X2 Cost (Rs)

10 45 30 180 210

20 28 60 112 172

30 16 90 64 154

40 12 120 48 168

50 8 150 32 182

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 k Y ou
Th a n

Complements (-) vs Substitutes (+)

defined by sign of cross price elasticity

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