CHAPTER-3 PRODUCTION AND COSTS
QUESTION:1
Explain the concept of a production function.
Answer:
The production function of a firm depicts the relationship between the inputs used in the production process and the final output. It specifies how many units of different inputs are needed in order to produce the maximum possible output. Production function is written as:
Qx = f (L, K)
Where:
Ax represents units of output x produced.
L represents units of Laboure employed. K represents units of capital employed.
The above equation explains that Ax, units of output x are produced by employing L and K units of lab our and capital respectively and by a given technology. As the given level of technology appreciates, the output will increase with the same level of capital and labor units.