PRODUCTION FUNCTION

Production can be defined as the creation of output

And includes any economic activity that uses
scarce resources to create that output

Production function
The firm first has to decidewhat type of product it
wants to produce . This can be decided only after
taking stock of the resources available.
Since the inputs and the costs of the different
methods of production may vary , the firm must
determine which method is most suitable with a
given ability of resources and the firms financial
condition

Production function
Input is defined as any good or services
which contributes to the production of an
output. Some of these inputs may be outputs
to other firms.Ex the sugarcane produce by
the farmersbecomes the input for the sugar
mill.

Transformation of inputs into

outputs can be of three types
Change in form (e.g. raw materials
transformed to finished products)
Change in space(e.g transportation)
Change in time(e.g. Storage)

Production function
The production function explains relationship
between the maximum quantity of output that can
be produced from given amount of various inputs
for a given technology
Let us assume that the factors of production can
be broadly categorised as labour(L)and capital
( K)
Q=f(K,L)

Concepts of product
Units of
labour
1
2
3
4
5
6
7
8
9

Total product
75
160

255
360
430
490
505
505
492

Marginal
product
75
85
95
105
70
60
15
0
-7

Average
product
75
80
85
90
86
82
72
63
57

Production function
output

Q=f(K,L)

Labour &capital

Production function
Average product=total product/number of units
of a factor employed
Marginal product =change in output/change in
input

Cobb douglas function

Q=AK L Where Q IS THE quantity of
production, A=constant , K=CAPITAL
INPUT,L=LABOUR INPUT

Q=100K.5L.5
RATE
OF
CAPIT
AL
INPUT

Of
1

lab
2

our
3

In
4

Put
5

100

141

173

200

224

245

265

283

141

200

245

283

316

346

173

245

300

346

387

424

200

283

346

400

447

490

224

316

387

447

500

548

245

346

424

490

548

600

265

374

458

529

592

648

283

400

490

565

632

693

800

 Q=A KL
FROM THE PRODUCTION TABLE
141=A1

inferences
To choose between labour intensive and capital
intensive
If input rate is doubled output rate is also doubled
If the one input is held constant and other
changesoutput increases but the successive
increments become smaller.