Meaning, Factors and

Nature of Production
Function
Article Shared by Tushar Seth

Meaning of Production Function:

Production function is the name given to the physical
relationship between a firms physical inputs and outputs
depending on a given state of technical knowledge.
Like demand, it refers to a period of time. Accordingly, it
refers to a flow of inputs resulting in a flow of outputs over
a period of time, leaving prices aside. It shows the
maximum amount of output that can be produced from a
given set of inputs in the existing state of technology.
The output will change when the quantity of any input is
changed.
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In real life, a manufacturer wants to know how much of the

various factors or inputs, viz., land (i.e. natural resources),
labour and capital will be required to produce a unit or a
given quantity of a commodity during a given period of
time.
It is necessary for him to know this so that he may be able
not only to assess his requirements of productive services
but also roughly to estimate the probable cost. It will thus
indicate the quantities of the productive resources and
their possible combinations used for the purposes of
production.
Factors Affecting Production Function:
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Production function, of course, depends, inter

alia, on:
(a) Quantities of resources used,
(b) State of technical knowledge,
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(c) Possible processes,

(d) Size of the firms,
(e) Nature of firms organisation,
(f) Relative prices of the factors of production and the
manner in which the factors of production are combined.
As these things change, production function will change
too. For instance, output can be increased by increasing
the quantity of factors of production or of some of them. It
can also be increased by varying the proportion in which
the factors combined. Adoption of more efficient
techniques of production, too, will add to the output. The
less efficient are the techniques, the smaller will be the
output.
Production changes with period of time. In the very long
period, it changes altogether because the same inputs
produce different outputs. In the long run, the production
function depicts the whole set of choices open to the
producer, i.e. what inputs will produce what output.
In the short run, the choices open to the producer are
restricted, because some of the factors are fixed and cannot
be changed in the short period and only some can be
varied. In this situation, the producer tries to find out the
relation between the variable inputs and the outputs.

Since production function is concerned with the physical

aspects of production, it is more a concern of an engineer
or a technician than of an economist, only a technician can
say what specific quantity of a good can be produced by the
use of the various productive resources and their
combinations.
Nature of Production Function:
Production function can be expressed as under:
X = f (a, b, c, d )
Here X is the output of a commodity per unit of time and a,
b, c, d, ,,,,,,,,, are the various productive resources which go
into the making of the quantity of the commodity. Every
management has to make a choice of the- production
function depending not only on industrial knowledge and
the prices of the various factors of production but also on
its own capacity to manage. It has also to select the various
factors and knit them together in economical
combinations. These two choices are interlinked. The
overriding consideration is to seek a combination which
gives the minimum average cost and maximum aggregate
profit.
For understanding the nature of production
function, the following points may be emphasized:
(i) The production function represents a purely technical
relationship in physical quantities between the inputs of
factors and the output of the products. It has no reference
to money price. The price factor is left out altogether.
(ii) The output is the result of a joint use of the facts of
production. It is obvious that the physical productivity of
one factor can be measured only in the context of this
factor being used in conjunction with other factors.

(iii) The nature of the quantity of the various factors and

the manner in which they are combined will depend on the
state of technical knowledge. For instance, labour
productivity will depend on the quality of labour as
determined by their education and training. Similarly, the
productivity of machines will be determined by the
technical advances embodied in them.
Again, it is on the basis of technical knowledge at the time
that labour, machines and other factors will be combined
in the processes of production. Thus, the state of technical
knowledge is treated as given (i.e., as a parameter) for
specifying a production function.
A change in technology will mean a shift to another
production function. It will alter the cost conditions.
Improvement in technology will result in a larger output
from a given combination of the factors of production.
(iv) In specifying the production function of a firm, we
have to take into account the variability of factors of
production and also whether they are divisible or
indivisible. These features of the factors of production will
determine their physical productivities and hence the
nature of the production functions.