Question

What is a production function? Write an equation for a typical production function, and explain what each of the six terms represent?

Answer 1

A production function represents the relationship between inputs & outputs of goods & services. It states how much maximum output can be produced with the help of available inputs & technology during a period of time. A production function can be short-run or long-run. In the short-run, production is based on factors among which some factors are fixed while in the long-run, all the factors of production are variable. In the form of an equation, a production function can be written as:

Q=A f(L,K,H,N)

where,

Q=quantity of output

L=labor supply

K=physical capital

H=human capital

N=natural resources

A=available production technology

This production function represents how much output can be produced with the help of available inputs namely, labor, physical capital, human capital, natural resources using the available production technology. So, production output is the function of given inputs & available production technology & this relationship is represented by the production function.