What is production ?
Production is the organised activity of transforming resources into finished products in the form
of goods and services. Production is an important economic activity. It results in the output
(creation) of an enormous variety of economic goods and services. Production refers to the
transformation of inputs to outputs, i.e., raw materials to goods.
Factors of production
Production of a commodity or service requires the use of certain resources or factors of
production. Since most of the resources necessary to carry on production are scarce relative to
demand for them they are called economic resources.
In economics the term land is used in a broad sense to refer to all natural resources or gifts of
nature.
Labour refers to human effect of any kind—physical and mental— which is directed to the
production of goods and services.
Capital is defined as ‘produced means of production.’ It is a man-made resource.
Enterprise (Organisation),as a factor of production, refers to the task of bringing land, labour
and capital together. It involves the establishment of co-ordination and co-operation among these
factors.
,the producer combines all the four factors of production in a technical proportion. The aim of the
producer is to maximize his profit. For this sake, he decides to maximize the production at
minimum cost by means of the best combination of factors of production.
Production Function
Production function refers to the functional relationship between the quantity of a good produced
(output) and factors of production (inputs).
“The production function is purely a technical relation which connects factor inputs and output.”
Prof. Koutsoyiannis
Mathematically, such a basic relationship between inputs and outputs may be expressed as:
Q = f( L, K, N )
Where Q = Quantity of output
L = Labour
K = Capital
N = Land.
main features of production function
1.Substitutability:
The factors of production or inputs are substitutes of one another which make it possible to vary
the total output by changing the quantity of one or a few inputs, while the quantities of all other
inputs are held constant.
2.Complementarity:
The factors of production are also complementary to one another, that is, the two or more inputs
are to be used together as nothing will be produced if the quantity of either of the inputs used in
the production process is zero
3. Specificity:
It reveals that the inputs are specific to the production of a particular product. Machines and
equipment’s, specialized workers and raw materials are a few examples of the specificity of
factors of production
The analysis of production is usually divided into two distinct categories, the short run analysis of
production and the long run analysis of production.
, Short run and Long run Production function
In order to explain Short run and Long run Production function, we have to consider two concepts
All inputs can be divided into two categories: i) fixed inputs and ii) variable inputs.
A fixed input is one whose quantity cannot be varied during the time under consideration. they are fixed
On the other hand, a variable input is one whose amount can be changed during the relevant period.
The short run is defined to be that period of time when some of the firm‘s inputs are fixed. In contrast, the
long run is that period over which all the firm‘s inputs are variable. In other words, the firm has the
flexibility to adjust or change its environment.
SHORT RUN PRODUCTION FUNCTION- The time period in which some factors of production are
fixed while some factors of production are variable
LONG RUN PRODUCTION FUNCTION: The time period in which all the factors of production are
variable is known as long run production function. It means that all the factors of production can be
changed in the long period and there exists no difference between the fixed and variable factors of
production.
the firm uses only two inputs X and Y to produce its output of one commodity, Q, and of
these two inputs X is a variable input and Y is a fixed input.
Therefore, in this case, the firm’s short-run production function may be written as:
q = f(x, y̅)
where y̅ is the fixed quantity of the fixed input y. The firm’s long run production function
in this example would be:
q = f(x, y)
where x and y are the variable quantities of the inputs X and Y.
SHORT PERIOD
LONG PERIOD
PRODUCTION
PRODUCTION FUNCTION
FUNCTION
Production is the organised activity of transforming resources into finished products in the form
of goods and services. Production is an important economic activity. It results in the output
(creation) of an enormous variety of economic goods and services. Production refers to the
transformation of inputs to outputs, i.e., raw materials to goods.
Factors of production
Production of a commodity or service requires the use of certain resources or factors of
production. Since most of the resources necessary to carry on production are scarce relative to
demand for them they are called economic resources.
In economics the term land is used in a broad sense to refer to all natural resources or gifts of
nature.
Labour refers to human effect of any kind—physical and mental— which is directed to the
production of goods and services.
Capital is defined as ‘produced means of production.’ It is a man-made resource.
Enterprise (Organisation),as a factor of production, refers to the task of bringing land, labour
and capital together. It involves the establishment of co-ordination and co-operation among these
factors.
,the producer combines all the four factors of production in a technical proportion. The aim of the
producer is to maximize his profit. For this sake, he decides to maximize the production at
minimum cost by means of the best combination of factors of production.
Production Function
Production function refers to the functional relationship between the quantity of a good produced
(output) and factors of production (inputs).
“The production function is purely a technical relation which connects factor inputs and output.”
Prof. Koutsoyiannis
Mathematically, such a basic relationship between inputs and outputs may be expressed as:
Q = f( L, K, N )
Where Q = Quantity of output
L = Labour
K = Capital
N = Land.
main features of production function
1.Substitutability:
The factors of production or inputs are substitutes of one another which make it possible to vary
the total output by changing the quantity of one or a few inputs, while the quantities of all other
inputs are held constant.
2.Complementarity:
The factors of production are also complementary to one another, that is, the two or more inputs
are to be used together as nothing will be produced if the quantity of either of the inputs used in
the production process is zero
3. Specificity:
It reveals that the inputs are specific to the production of a particular product. Machines and
equipment’s, specialized workers and raw materials are a few examples of the specificity of
factors of production
The analysis of production is usually divided into two distinct categories, the short run analysis of
production and the long run analysis of production.
, Short run and Long run Production function
In order to explain Short run and Long run Production function, we have to consider two concepts
All inputs can be divided into two categories: i) fixed inputs and ii) variable inputs.
A fixed input is one whose quantity cannot be varied during the time under consideration. they are fixed
On the other hand, a variable input is one whose amount can be changed during the relevant period.
The short run is defined to be that period of time when some of the firm‘s inputs are fixed. In contrast, the
long run is that period over which all the firm‘s inputs are variable. In other words, the firm has the
flexibility to adjust or change its environment.
SHORT RUN PRODUCTION FUNCTION- The time period in which some factors of production are
fixed while some factors of production are variable
LONG RUN PRODUCTION FUNCTION: The time period in which all the factors of production are
variable is known as long run production function. It means that all the factors of production can be
changed in the long period and there exists no difference between the fixed and variable factors of
production.
the firm uses only two inputs X and Y to produce its output of one commodity, Q, and of
these two inputs X is a variable input and Y is a fixed input.
Therefore, in this case, the firm’s short-run production function may be written as:
q = f(x, y̅)
where y̅ is the fixed quantity of the fixed input y. The firm’s long run production function
in this example would be:
q = f(x, y)
where x and y are the variable quantities of the inputs X and Y.
SHORT PERIOD
LONG PERIOD
PRODUCTION
PRODUCTION FUNCTION
FUNCTION
