Production and Production Function || Theory of Production || Bcis Notes

Production and Production Function


In general terms, production refers to the creation of new things but in the economic sense, it is the process of creation and addition of utility in existing goods and services. It is the process of combining various inputs immaterial inputs in order to make something for consumption. There are mainly four factors of and they are land, labour, capital and organization which are used to produce goods and services.

  1.  Land – It includes any natural resource used to produce goods and services. This includes not just land, but anything that comes from the land.
  2. Labour – Labor is the effort that people contribute to the production of goods and services.
  3. Capital – Capital are the machinery, tools and buildings humans use to produce goods and services. Some examples of capital include hammers, forklifts, conveyor belts, computers, and delivery vans.
  4. Organization – An organization is a thing which combines the other factors of production – land, labour, and capital – to earn a profit.

Production Function 

The functional or technical relationship between factors of inputs as an independent variable and output as the dependent variable is called as production function. It shows the flow of inputs to produce the flow of output over some specific period of time. It expresses a physical relationship because both inputs and output are expressed in physical terms. The production function of land, labour, capital and organization is expressed as:-

Q = f(La, L, K, O)

Types :

  1. Short-run: It is that time period where only variable factors of production can be changed keeping fixed factors constant. Generally in short-run, single factor (mainly labour) is regarded as the variable factor of production. So, it is also called a single variable production function.
  2. Long-run: It is that time period in which all the factors of production involved in the production process can be changed. Here in this function as we can measure the effect of various factors so it is also called a Multivariable production function.


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