Friday, February 21, 2014




In Economics the term production means process by which a commodity(or commodities) is transformed in to a different usable commodity. In other words, production means transforming inputs( labour ,machines ,raw materials etc.) into an output. This kind of production is called manufacturing. The production process however does not necessarily involve physical conversion of raw materials in to tangible goods . it also includes the conversion of intangible inputs to intangible outputs . For example , production of legal, medical ,social and consultancy services- where lawyers, doctors, social workers consultants are all engaged in producing intangible goods.

An „input` is good or service that goes in to the process of production and “out put is any good or service that comes out of production process.

Fixed and variable inputs.
In economic sense, a  fixed  input is one whose  supply is inelastic in the short run

.Therefore, all of its users cannot buy more of it in short run. Conceptually, all its users, cannot employ more of it in the short run. If one user buys more of it, some other users will get less of it. A variable input is defined as one whose supply in the short run is elastic, eg:Labour, raw materials etc. All the users of such factors can employ larger quantity in the short run.

In technical sense ,a fixed input remains fixed (constant) up to a certain level of output whereas a variable input changes with change in output . A firm has two types of production function:-

(1)   Shot run production function

(2)   Long run production function

Production function

Production function shows the technological relationship between quantity of out put and the quantity of various inputs used in production. Production function is economic sense states the maximum output

that  can be  produced during a period with a  certain  quantity
of various
inputs in
existing  state
of technology.  In  other words, It is the tool of analysis which
is  used  to
input -  output
relationships. In general, it tells that production of a commodity depends on the specified inputs. in  its

specific  tem  it  presents  the  quantitative  relationship  between inputs
and  output . inputs
classified as:-

1 . Fixed
input or fixed factors.

2. Variable input or variable factors.

Short run and Long run

Shot run refers to
a period of time  in which
the supply of certain inputs (E.g. :- plant,
building ,machines, etc)
or inelastic. Thus an increases in
production during this  period is
possible only  by increasing the variable input . In some Industries, short run may be  a matter of
weeks or a few months and in some others it may extent even up to three or more years.

The long run refers to a period of time in which “ supply of all the input is elastic ; but not
enough  to  permit   a
change  in
technology. In
long  run,
availability  of  even
factor increases.
the long run, production
of commodity
be  increased by employing
more of both ,variable and fixed inputs.

In the strict sense ,production function is defined as the transformation of physical input in to
physical out put where out put is a function input .It can be expressed algebraically as;

Q=f (K,L etc).Where

Q- Is the quantity of out put
produced during a particular period

K, L etc are the factors of production

f -denotes the function of or depends on.

The production functions are based on certain assumptions;
1.  Perfect divisibility of both inputs and out put;
2.  Limited substitution of one factor for the others
3.  Constant technology; and
4.  Inelastic supply of fixed factors in the short run