Production
The creation of any good or service that has an economic value either to consumers or to other producers is called the production. Production analysis focuses on the efficient use of inputs to create outputs. The process involves all the activities associated with providing goods and services.
Managerial Questions
Managerial questions are as follows:
1. Whether to produce or shut down?
2. How much to produce?
3. What input combination to use?
4. What type of technology to use?
Examples
• Physical processing or manufacturing of material goods
• Production of transportation services
• Production of legal advice
• Production of education
• Production of invention (R&D)
• Production of bank loans
Production Function
The production function relates the output of a firm to the amount of inputs, especially capital and labor.
It can also be defined as a schedule (table, equation) showing the maximum amount of output that can be produced from any specified set of inputs, given the existing technology or “state of the art.”
In short, the production function is a catalog of various possibilities of output.
Q = f (X,Y) or (K,L)
It is important to keep in mind that the production function describes technology, not economic behavior. A firm may maximize its profits given its production function but generally takes the production function as a given element of that problem. In specialized long-run models, a firm may choose its capital investments to choose among various production technologies.
The creation of any good or service that has an economic value either to consumers or to other producers is called the production. Production analysis focuses on the efficient use of inputs to create outputs. The process involves all the activities associated with providing goods and services.
Managerial Questions
Managerial questions are as follows:
1. Whether to produce or shut down?
2. How much to produce?
3. What input combination to use?
4. What type of technology to use?
Examples
• Physical processing or manufacturing of material goods
• Production of transportation services
• Production of legal advice
• Production of education
• Production of invention (R&D)
• Production of bank loans
Production Function
The production function relates the output of a firm to the amount of inputs, especially capital and labor.
It can also be defined as a schedule (table, equation) showing the maximum amount of output that can be produced from any specified set of inputs, given the existing technology or “state of the art.”
In short, the production function is a catalog of various possibilities of output.
Q = f (X,Y) or (K,L)
It is important to keep in mind that the production function describes technology, not economic behavior. A firm may maximize its profits given its production function but generally takes the production function as a given element of that problem. In specialized long-run models, a firm may choose its capital investments to choose among various production technologies.
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