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Karnataka Class 12 Commerce Economics Concept Of Production Function Complete Notes

Karnataka Class 12 Commerce Economics Concept Of Production Function Complete Notes

Karnataka Class 12 Commerce Economics Concept Of Production Function :  Karnatak University is a state university located in the city of Dharwad in the state of Karnataka in India. It was established in October 1949, and officially inaugurated in March 1950. The campus spans 750 acres (3 km²). D. C. Pavate was the first official vice-chancellor from 1954 to 1967. The rapid development of the institution is credited to him.

Karnataka Class 12 Commerce Economics Concept Of Production Function Complete Notes

Karnataka Class 12 Commerce Economics Concept Of Production Function : Cakart team members provides here Karnataka Class 12 Commerce Economics Concept Of Production Function Complete Notes and other Karnataka Class 12 Commerce Economics Complete Notes in pdf format. We provides you direct link for downloading Karnataka Class 12 Commerce Economics Concept Of Production Function Complete Notes in pdf format. DownloadKarnataka Class 12 Commerce Economics Concept Of Production Function Complete Notes and read well.

Karnataka Class 12 Commerce Economics Concept Of Production Function Complete Notes

Karnataka Class 12 Commerce Economics Concept Of Production Function : production function relates physical output of a production process to physical inputs or factors of production. The production function is one of the key concepts of mainstream neoclassical theories, used to define marginal product and to distinguish allocative efficiency, the defining focus of economics. The primary purpose of the production function is to address allocation efficiency in the use of factor inputs in production and the resulting distribution of income to those factors, while abstracting away from the technological problems of achieving technical efficiency, as an engineer or professional manager might understand it. Production function denotes an efficient combination of inputs and outputs.

In macroeconomics, aggregate production functions are estimated to create a framework in which to distinguish how much of economic growth to attribute to changes in factor allocation (e.g. the accumulation of capital) and how much to attribute to advancing technology. Some non-mainstream economists, however, reject the very concept of an aggregate production function.

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The supply of a product, depends upon its cost of production, which in turn depends upon:

(a) The physical relationship between inputs and output, and

(b) The prices of inputs.

The physical relationship between inputs and output plays an important part in determining the cost of production. It is the general description of this physical relation between inputs and output which forms the subject-matter of the theory of production. In other words, the theory of production relates to the physical laws governing production of goods.

The act of production involves the transformation of inputs into outputs. The word production in economics is not merely confined to bringing about physical transformation in the matter it is creation or addition of value.

Therefore, production in economics also covers rendering of services such as transporting, financing, and marketing. Laws of production, or in other words, the generalisations regarding relations between inputs and outputs developed all these types of production.

The relation between inputs and output of a firm has been called the ‘Production Function’. Thus, the theory of production is the study of production functions. The production function of a firm can be studied by holding the quantities of some factors fixed, while varying the amount of other factors.

This is done when the law of variable proportions is derived. The production function of a firm can also be studied by varying the amounts of all factors. The behaviour of production when all factors are varied is the subject-matter of the laws of returns to scale. Thus, in the theory of production, the study of (a) the law of variable proportions and (b) the laws of returns to scale is included.

Besides this, the theory of production is also concerned with explaining which combination of inputs (or factors of production) a firm will choose so as to minimise its costs of production for producing a given level of output or to maximize output for a given level of cost.

Karnataka Class 12 Commerce Economics Concept Of Production Function Complete Notes

Karnataka Class 12 Commerce Economics Concept Of Production Function :  Production of goods requires resources or inputs. These inputs are called factors of production named as land, labor, capital and organization. A rational producer is always interested that he should get the maximum output from the set of resources or inputs available to him. He would like to combine these inputs in a technical efficient manner so that he obtains maximum desired output of goods. The relationship between the inputs and the resulting output is described as production function . 

A production function shows the relationship between the amounts of factors used and the amount of output generated per period of time.

Formula: It can be expressed in algebraic form as under:

X = f (a1, a2 ,…….., an)

This equation tells us the quantity of the product X which can be produced by the given quantities of inputs (lands labor, capital) that are used in the process of production. Here it may be noted that production function shows only the maximum amount of output which can be produced from given inputs. It is because production function includes only efficient production process.

 The analysis of production function is generally carried with reference to time period which is called short period and long period. In the short run, production function is explained with one variable factor and other factors of productions are held constant. We have called this production function as the Law of Variable Proportions or theLaw of Diminishing returns. In the long run, production function is explained by assuming all the factors of production as variable.

There are no fixed inputs in the long run. Here the production function is called the Law of Returns according to the scale of production. As it is difficult to handle more than two variables in graph, we therefore, explain the Law of Returns according to scale of production by assuming only two inputs i.e., capital and labor and study how output responds to their use.

Karnataka Class 12 Commerce Economics Concept Of Production Function Complete Notes

Karnataka Class 12 Commerce Economics Concept Of Production Function :  Production is the result of co-operation of four factors of production viz., land, labour, capital and organization. This is evident from the fact that no single commodity can be produced without the help of any one of these four factors of production.

Therefore, the producer combines all the four factors of production in a technical proportion. The aim of the producer is to maximize his profit. For this sake, he decides to maximize the production at minimum cost by means of the best combination of factors of production.

The producer secures the best combination by applying the principles of equi-marginal returns and substitution. According to the principle of equi-marginal returns, any producer can have maximum production only when the marginal returns of all the factors of production are equal to one another. For instance, when the marginal product of the land is equal to that of labour, capital and organisation, the production becomes maximum.

Meaning of Production Function:

In simple words, production function refers to the functional relationship between the quantity of a good produced (output) and factors of production (inputs). “The production function is purely a technical relation which connects factor inputs and output.” Prof. Koutsoyiannis Defined production function as “the relation between a firm’s physical production (output) and the material factors of production (inputs).” Prof. Watson

In this way, production function reflects how much output we can expect if we have so much of labour and so much of capital as well as of labour etc. In other words, we can say that production function is an indicator of the physical relationship between the inputs and output of a firm. The reason behind physical relationship is that money prices do not appear in it. However, here one thing that becomes most important to quote is that like demand function a production function is for a definite period.

It shows the flow of inputs resulting into a flow of output during some time. The production function of a firm depends on the state of technology. With every development in technology the production function of the firm undergoes a change.

The new production function brought about by developing technology displays same inputs and more output or the same output with lesser inputs. Sometimes a new production function of the firm may be adverse as it takes more inputs to produce the same output.

Mathematically, such a basic relationship between inputs and outputs may be expressed as:

Q = f( L, C, N )

Where Q = Quantity of output

L = Labour

C = Capital

N = Land.

Hence, the level of output (Q), depends on the quantities of different inputs (L, C, N) available to the firm. In the simplest case, where there are only two inputs, labour (L) and capital (C) and one output (Q), the production function becomes.

Q =f (L, C)

Definitions:

“The production function is a technical or engineering relation between input and output. As long as the natural laws of technology remain unchanged, the production function remains unchanged.” Prof. L.R. Klein

“Production function is the relationship between inputs of productive services per unit of time and outputs of product per unit of time.” Prof. George J. Stigler

“The relationship between inputs and outputs is summarized in what is called the production function. This is a technological relation showing for a given state of technological knowledge how much can be produced with given amounts of inputs.” Prof. Richard J. Lipsey

Thus, from the above definitions, we can conclude that production function shows for a given state of technological knowledge, the relation between physical quantities of inputs and outputs achieved per period of time.

Features of Production Function:

Following are the main features of production function:

1. Substitutability:

The factors of production or inputs are substitutes of one another which make it possible to vary the total output by changing the quantity of one or a few inputs, while the quantities of all other inputs are held constant. It is the substitutability of the factors of production that gives rise to the laws of variable proportions.

2. Complementarity:

The factors of production are also complementary to one another, that is, the two or more inputs are to be used together as nothing will be produced if the quantity of either of the inputs used in the production process is zero.

The principles of returns to scale is another manifestation of complementarity of inputs as it reveals that the quantity of all inputs are to be increased simultaneously in order to attain a higher scale of total output.

3. Specificity:

It reveals that the inputs are specific to the production of a particular product. Machines and equipment’s, specialized workers and raw materials are a few examples of the specificity of factors of production. The specificity may not be complete as factors may be used for production of other commodities too. This reveals that in the production process none of the factors can be ignored and in some cases ignorance to even slightest extent is not possible if the factors are perfectly specific.

Production involves time; hence, the way the inputs are combined is determined to a large extent by the time period under consideration. The greater the time period, the greater the freedom the producer has to vary the quantities of various inputs used in the production process.

In the production function, variation in total output by varying the quantities of all inputs is possible only in the long run whereas the variation in total output by varying the quantity of single input may be possible even in the short run.

Karnataka Class 12 Commerce Economics Concept Of Production Function Complete Notes

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