Production Function

… a core term used in Economic Analysis and Atlas102

Definition

Boundless.com (reference below) defines production function as the function that relates physical output of a production process to physical inputs or factors of production.

Source: Boundless. “Defining the Production Function.” Boundless Economics. Boundless, 12 Aug. 2015. Retrieved 19 May. 2016 from https://www.boundless.com/economics/textbooks/boundless-economics-textbook/production-9/the-production-function-63/defining-the-production-function-237-12335/.

Boundless.com goes on to say:

“It is a mathematical function that relates the maximum amount of output that can be obtained from a given number of inputs – generally capital and labor. The production function, therefore, describes a boundary or frontier representing the limit of output obtainable from each feasible combination of inputs.

“Firms use the production function to determine how much output they should produce given the price of a good, and what combination of inputs they should use to produce given the price of capital and labor. When firms are deciding how much to produce they typically find that at high levels of production, their marginal costs begin increasing. This is also known as diminishing returns to scale – increasing the quantity of inputs creates a less-than-proportional increase in the quantity of output. If it weren’t for diminishing returns to scale, supply could expand without limits without increasing the price of a good.”

Atlas topic, subject, and course

Producer Theory and Competition (core topic) in Economic Analysis and Atlas102 Economic Analysis.

Source

Boundless.com, Defining Production Function, at https://www.boundless.com/economics/textbooks/boundless-economics-textbook/production-9/the-production-function-63/defining-the-production-function-237-12335/, accessed 19 May 2016.

Page created by: Ian Clark, last modified 19 May 2016.