PRODUCTION FUNCTION – Notes for B.Com/ BBA/ M.com/ BBA

Table of Contents

MEANING

Production Function expresses the functional relationship between output of a commodity and various inputs used in to produce that commodity. It can be expressed as:

Q= f (L,K)

It means the output is the function of a fixed factor ‘Land (L)’ and a variable factor ‘Capital (K)’.

ACCORDING TO KOUTSOYIANNIS

“The production function is purely a technical relationship which connects factors inputs and outputs.”

ACCORDING TO WATSON

“Production function is the relation between a firm’s production and the material factors of production.”

Thus, it expresses a technical relationship between production of a commodity and factors of production involved in the production of that commodity.

ASSUMPTIONS

  • There is perfect divisibility of both inputs and outputs.
  • There are only two factors of production i.e. Land and Labour. One factor is fixed and another factor is variable.
  • The technology of production cannot be changed i.e. it is constant.
  • There is inelastic supply of fixed factors in the short run.
  • There is limited substitutability of one factor for the another i.e. labour and capital cannot substitute one another.

TYPES OF PRODUCTION FUNCTION

There are two types basically:

  • SHORT RUN OR VARIABLE PROPORTIONS TYPE
  • LONG RUN OR CONSTANT PROPORTIONS TYPE

SHORT RUN PRODUCTION FUNCTIONS: The time period in which some factors of production are fixed while some factors of production are variable, is known as short period. The functions which explains the technical relationship between outputs and inputs in the short run is known as short period production function. It is also known as Variable proportions type production functions.

LONG RUN PRODUCTION FUNCTIONS: The time period in which all the input factors are variable is known as long period 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.  

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Types of demandManagerial economicsCharacteristics of managerial economicsScope of managerial economics
Utility analysisLaw of diminishing marginal utilityLaw of equi marginal utilityConsumers Equilibrium
Indifference curve analysisConsumer equilibrium using indifference curve analysisRelationship between TP, AP and MPLaw of increasing returns
Law of diminishing returnsLaw of constant returnsReturns to ScaleEconomies and diseconomies of scale
Concept of costsRelationship between AC and MCTraditional theory of costsModern theory of costs
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Price discriminationDifference between perfect competition and monopolyPerfect Vs Monopolistic competitionMonopoly and monopolistic competition
Product differentiation strategyMonopolistic competitionNational Income in IndiaMeasurement of national income in India
Consumption functionKeynes Psychological law of consumption
PRODUCTION FUNCTION
PRODUCTION FUNCTION

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