THEORY OF PRODUCTION
Production theory deals with physical relationship i.e. technical & Technological relations between input & between Output & inputs.
Means a process by which a commodity or commodities are transformed intoa different usable commodity.
(Called manufacturing)Services like transport, legal, medical consultancy, storage for future use, wholesaling, retailingare also productive activities.
INPUT & OUTPUTINPUT
Inputs are of two types1.Fixed2.Variable
whose supply is inelastic in short run. All its users can’t employ more of it inshort run. E.g. plant, machinery, building.
Whose supply in short run is elastic e.g. labour & raw material
Goods & services that comes out of production process.
SHORT RUN & LONG RUNSHORT RUN
Supply of certain inputs is fixed production can be increased by increase in useof variable inputs.
Supply of all inputs is elastic but not enough to permit a change in technology.
Production function is a tool of analysis used to explain the relationship between input & output.It describes the technological relationship between input & output.It tells that production depends on certain ships. It can be in the form of specific inputs.
An algebra aqua
Mathematical modelClassification of input by economist
SpaceE.g.a = f (K, L)K = CapitalL = Labor
(i)Perfect divisibility of both inputs & outputs.(ii)Limited substitution of one factor for the other.