Question

define and draw the firms production function. what determinants allow a firm to expand?

Answer 1

A production function relates quantities of physical output of a production process to quantities of physical inputs or factors of production. It is a functional relationship between the quantity of a good produced (output) and factors of production (inputs).

Determinants that allow a firm to expand

Internal and external environmental factors affect the growth path of a firm:

External Factors:

Demographic : The heterogeneity of demographics in terms of varied tastes, preferences, beliefs, temperaments, etc. affects the demand patterns of populations, and the enterprises need to make different strategies accordingly. Social environmental factors include human relationships and its effects on the society, hence the growth of an organization.

Cultural: Understanding a particular culture and its proper analysis provide opportunities to establish and run a business.

Political: Factors related to the management of public affairs has impact on the growth of an organization and if they are favourable for the firm, firm expands.

Economic: This this the key determining factor that impacts the growth of an organisation. It includes Financial environment, Trade environment , Legal and the technological environment. All these have a huge impact on the growth of a business. In addition to this the regulatory environment in which a firm operates has a major impact on how a firm expands . Other external factors effecting business environment would include tax environment and ethical environment.

Internal Factors

The internal environment comprises resources, synergy, and distinctive competencies of a firm. All these together determine organizational capability in terms of its strengths and weaknesses existing in different functional areas like marketing, operations, personnel, financial, technical, etc. Business managers need to monitor the business opportunities and threats that have or likely to have an impact on their organization. However, the internal environment is constantly influenced by the external environment.

It is a flexible organizational structure enables the organization to quickly and effectively respond to the changes in the market leading to the growth and expansion of firm.