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(i) Production:- this is the creation of goods and services through the transformation of inputs into outputs.
(ii) Inputs:- these are the ingredients used by a firm to produce a good or service. Sometimes they are called factors of production or resources. These include land, capital, labour, entrepreneurs etc.
(iii) Output:- this is the end product of transforming input into goods or services. Output is thus a function of the various input expressed in the production function.
(iv) Production function:- a production function is a schedule (or table, or mathematical equation) showing the maximum amount of output that can be produced from any specified combination of inputs, given the existing technology.
In short the production function is like a “recipe book” showing what output are associated with which combination of inputs.
It may be represented as follows
Q = f (K, L, r)
Where;
Q is output
L is labour
K is capital
r are other input resources
(v) Short run period:- refers to the period of time during which it is impractical to change the employment levels of some inputs so as to immediately increase output. Factors input that cannot be varied during this period are referred to as fixed
input incase an immediate change in output is desired, it would be extremely costly to immediately vary such inputs. Such inputs include buildings, machinery, managerial personnel. Therefore changes in output must be accomplished exclusively by changes in the usage of variable inputs. A variable input:- is one whose quantity may be changed almost instantaneously in response to desired changes in output. Many types of labour services and the inputs of raw and processed materials fall in this category. Thus in short run period one factor is held fixed (e.g. capital) while other one variable (labour)
(vi) Long run period:- is defined as that period of time in which inputs are variable in the long run it may be economical to install additional productive facilities. In order to produce a certain level of output, we could use different combinations of labour and capital.
(vii) Isoquant:- is a curve that shows all the combinations of inputs that will produce a certain level of output, given same level of technology. In the analysis of theory of production two approaches will be used.
1) Analysis of production: in the short run when one factor is variable and the other is fixed. (short run period
function approach)
2) Isoquant analysis, which is long-run approach and which assumes that all factors are variable.
Wilfykil answered the question on March 6, 2019 at 13:19
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