PRODUCTION FUNCTION: INPUT-OUTPUT RELATIONSHIP

Thus, the production fun yon expresses the relationship between Nunavut of output and the quantities of various inputs u 111 production. The physical relationship between 3 firm’s physical input and output depends on a given cut technological knowledge. Like demand, production function refers to a period of time. Accordingly , It refers to a now of inputs resulting in a now u output over a period of time, leaving prices aside.

A manufacturer wants to know how much of the various factors or inputs, natural resources), labor and capital will be required to produce a unit or given quantity of a commodity during a given period of time. It is necessary for him to know this so that he may be able not only to assess his requirements of productive  hut also roughly to estimate the probable cost. It will thus indicate the varieties of the productive resources and their possible combinations used for the purposes of production.

Every contumacy has to make a choice of the production function depending nut only on industrial knowledge and the prices of  various factors or production hut a/soon its own capacity to Tuamotu. It has 31,u to select the various factors aim knit them together in economical combinations. These two choices are interlinked. The over-riding consideration is to seek a combination which gives the minimum average and maximum aggregate profit.

The nature or the quantity of the various actors and the manlier in which they arc combined will depend on the state or technical knowledge. For instance, labor productivity will depend on the quality of labor as determined by their education and training. Similarly. the productivity of machines will he determined by the technical advances embodied in them, Again, it is on the basis of technical knowledge at the time that labor, machines and other factors will be combined in the processes of production. Thus, the state of technical knowledge is treated as given (i.e as a parameter) for specifying a production function. A change ill technology will mean a shift to another production function. It will alter the cost condition. Improvement in technology will result in a larger output
Ainu a given combination or the factors of production.

In this diagram. 01{ represents the fixed labor capital ratio. This ratio must be maintained whatever the level of output. Since this ratio is fixed. the Squanto relating to such a production function arc shown as right-angled. Suppose the ratio is units of capital and .I units of lab out when 100 units of the product are to be produced: then for producing 200 units 4 units of capital and 6 units of labor will be required. and so 011. It may be noticed that along each Squanto the marginal product of a factor is zero, For instance. at B on Squanto of 200. if the amount of capital used is fixed the use of extra labor makes no audition to the total product, i.e. the marginal product of labor is zero. However doubling .Ruth factors will result in doubling the output, and so on.