Explain the concept of a production function.
The functional relationship between physical inputs and physical output of a firm is called production function. How? Production is also defined as 'transformation of physical inputs into physical output.' Output depends on inputs i.e., output is a function of inputs. There is direct relationship between the amount of inputs (such as land, labour, machinery etc.) used and the amount of output produced. Thus production function shows relationship between physical inputs and physical output. Algebraically, it can be expressed as below presuming there are three factor inputs : labour (L), capital (K) and Land (D). Q = f(L, K, D ...) where Q is quantity of physical output and L, K, D stand for quantities of labour, capital and land. The equation tells that output is a function of labour, capital and land. Mind, with given technology different levels of output can be produced using given resources. Thus production function gives information regarding maximum amount of output that can be produced from different quantities of factor inputs with given technology per period of time. In short 'a production function is an expression of relationship between change in inputs and the resultant change in output'. Again note that production function does not tell about price and cost of output but describes a purely technical relationship between physical inputs and output.
Mind, product or output or production means the volume of goods and services produced by a firm with given inputs. The production function showing relationship between inputs and output can be explained in terms of total product i.e., total physical product (TPP), marginal physical product (MPP) and average physical product (APP), as given in the next question.
