1. Definition and Importance of
Production Function

2. Contents :
 Introduction:
• Meaning of Production
• Importance of Production to an Organization
• Factors/Inputs/Variables of Production
 Production Function:
• Definition of Production Function
• Importance of Production Function
• Assumptions of Production Function

3. Meaning of Production
“The processes and methods used to transform tangible
(raw materials, semi-finished goods, subassemblies)
and intangible inputs (ideas, information, knowledge)
into goods or services”
It is an important activity of business
It is conversation process/ transformation
It is a value creation system

4. Importance of Production

5. Factor/Inputs/Variables of Production

6. Definition of Production Function
“The production function is the name given to the
relationship between the rates of productive services and
the rates of output of the product.”
---- Stigler
“Production function is that function which defines the
maximum amount of output that can be produced with a
given set of inputs”.
----- Michael R Baye.
It can be expressed in an allegorical equation:
∫= )...........,,,( ndcbaQ Where
Q stands for the quantity of output
a, b, c, d…..n are the various inputs.

7. Importance of Production Function
1. When inputs are specified in physical units, production
function helps to estimate the level of production
2. It becomes is equates when different combination of inputs
yield the same level of output
3. It indicates the manner in which the firm can substitute on
input for another without altering the total output
4. When price is taken into consideration, the production
function helps to select the least combination of inputs for
the desired output
5. It explains two types of input – output relationships namely
law of variable proportions and law of returns to scale
6. It explains the maximum quantity of output, which can be
produced , from any chosen quantities of various inputs

8. Assumptions of
Production Function
1. The production function is related to a particular
period of time
2. There is no change in the technology
3. The producer is using the best techniques
available
4. The factors of production are divisible
5. Production function can be fitted to a short rung
or long rung

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