Question

What is Production Function? Explain Factors of Production. Differentiate short run and long run production function.

Answer 1

A production function refers to output of a production process to inputs or factors of production. It is a mathematical function that refers the maximum amount of output that can be generated from a given number of inputs – more specifically capital and labor.

The four factors of production are inputs used in various combinations for the production of goods and services.

1 . LAND is as a factor of production in that it refers to all natural resources. These resources are gifts that are given by nature. Some common examples of natural resources are water, oil, copper, natural gas, coal, and forest.

2. Labor, as a factor of production, involves any human input. It is work done by people of any type contributing to production. Labor was considered to be the main source of economic value according to early, influential political economic..

3. Here capital doesn't mean money (which is not a factor of production), but to manufactured resources such as factories and machines. These are man-made goods used in the production of other goods. Modern, economists typically consider capital to be the main source of value, in contrast to economists of the past, who described land or labor as such.

4. An entrepreneur is someone who takes on the economic risk involved in bringing the other three factors of production together. Entrepreneurs are a vital part of economic growth at all scales, helping to build many of the largest firms in the world or even small businesses. Entrepreneurs help contribute to economic growth.

Difference between short run and long run production function

1. The short run production function means the time period over which the firm is not able to change the quantities of all inputs more generally fixed inputs,On the other hand long run production function indicates the time period, over which the firm can change the quantities of all the inputs.
2. Under short run production function, the law of variable proportion operates, in the long-run production function, the law of returns to scale operates.
3. The activity level does not change in the short run production function, whereas the firm can increase or reduce the activity levels in the long run production function.
4. In short run production function the factor ratio changes because one input varies while the remaining are fixed in nature ( say labor varies and machine is fixed ).Contrary , the factor proportion remains same in the long run production function, as all factor inputs vary in the same proportion