Production Function
PRODUCTION FUNCTION
Objectives
After going through this unit, you should be able to: familiarise with the concepts and rules relevant for production decision analysis; understand the economics of production; understand the set of conditions required for efficient production.
Introduction to Microbes
Structure
7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 7.9 Introduction Production Function Production Function with one Variable Input Production Function with two Variable Inputs The Optimal Combination of Inputs Returns to Scale Summary Self-Assessment Questions Further Readings
7.1 INTRODUCTION
Production process involves the transformation of inputs into output. The inputs could be land, labour, capital, entrepreneurship etc. and the output could be goods or services. In a production process managers take four types of decisions: (a) whether to produce or not, (b) how much output to produce, (c) what input combination to use, and (d) what type of technology to use. This Unit deals with the analysis of managers’ decision rules concerning (c) and (d) above. The analysis of the other two decisions will be covered in Units 8 and Unit 9 of this block. In this unit, we shall begin with a general discussion of the concept of production function. The analysis of this unit mainly focuses on the firms that produce a single product. Analysis on decisions related to multiproduct firms is also given briefly. The nature of production when there is only one variable input is taken up first. We then move on to the problem of finding optimum combination of inputs for producing a particular level of output when there are two or more variable inputs. You will learn various functional forms of production frequently used by economists and their empirical estimation in Unit 10. The unit concludes with the production decisions in case of product mix of multiproduct firms.
7.2 PRODUCTION FUNCTION
Suppose we want to produce apples. We need land, seedlings, fertilizer, water, labour,
Objectives
After going through this unit, you should be able to: familiarise with the concepts and rules relevant for production decision analysis; understand the economics of production; understand the set of conditions required for efficient production.
Introduction to Microbes
Structure
7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 7.9 Introduction Production Function Production Function with one Variable Input Production Function with two Variable Inputs The Optimal Combination of Inputs Returns to Scale Summary Self-Assessment Questions Further Readings
7.1 INTRODUCTION
Production process involves the transformation of inputs into output. The inputs could be land, labour, capital, entrepreneurship etc. and the output could be goods or services. In a production process managers take four types of decisions: (a) whether to produce or not, (b) how much output to produce, (c) what input combination to use, and (d) what type of technology to use. This Unit deals with the analysis of managers’ decision rules concerning (c) and (d) above. The analysis of the other two decisions will be covered in Units 8 and Unit 9 of this block. In this unit, we shall begin with a general discussion of the concept of production function. The analysis of this unit mainly focuses on the firms that produce a single product. Analysis on decisions related to multiproduct firms is also given briefly. The nature of production when there is only one variable input is taken up first. We then move on to the problem of finding optimum combination of inputs for producing a particular level of output when there are two or more variable inputs. You will learn various functional forms of production frequently used by economists and their empirical estimation in Unit 10. The unit concludes with the production decisions in case of product mix of multiproduct firms.
7.2 PRODUCTION FUNCTION
Suppose we want to produce apples. We need land, seedlings, fertilizer, water, labour,