PRODUCTION FUNCTION

What is production?

Production is a process where inputs are transformed into outputProduction is an activity where resources are altered or changed and there is an increase in the ability of these resources to satisfy wants. Input is any goods or service which helps in the production of an output. To get Production Function Homework Help contact tutorspoint.com

Production function:

Production function is a technical relationship between a set of inputs or resources and a set of outputs or goods.

QX = f( inputs [land, labor, capital], technology, . . )

Production function is a technical relationship between a set of inputs or resources and a set of outputs or goods.

QX = f(L, K)

QX = quantity of output

L = labor input

K = Capital input

Example:

Inputs and outputs in healthcare:

Inputs for the hospital: The infrastructure, beds, equipments, vehicles, drugs, manpower etc

Outputs: In-patient days, number of outpatients visits, No. of surgeries conducted, completed consultant episodes etc

Inputs for public healthcare delivery: communication materials, birth control devices, voluntary support, vehicles etc

Outputs:  number of birth control devices distributed, number of awareness campaigns, number of targeted patients treated etc.

Final output of any healthcare system is improvement in health that the system was designed to produce. The advantage of using the intermediate indicators as output is that they are measurable and hence can be easily monitored.

Factors:

There are two types which are the fixed and the variable factors.

  1. Fixed factor do not change with the change in output. Examples are Factory building, rent, plant or machinery etc.
  2. Variable factor changes with the change in output. Examples are Raw materials, daily laborers, electricity etc.

Types of production function:

Based on the time period Production Function is divided into

  1. Short run Production Function or Returns to factor: Short run Production Function is a production function in which output is changed by changing only the variable factor
  2. Long run Production Function or Returns to scale : Long run production function is a production function in which output is changed by changing both the fixed factor and the variable factor.

Example: Suppose the demand for Tata Steel increases

To respond to this increase in demand the industry will increase production by increasing the raw materials, hiring more workers, increasing workers’ overtime, increasing the capacity utilization of the plant etc. These are variable factors.

In the long run to meet the excess demand the producer has to change the fixed factors such as building, machinery etc.

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