Glossary term
Production Function: Meaning and Definition
Reviewed and approved by Dr. Anamika ShrivastavaPublished Last updated
A production function is the relationship between the quantities of inputs a firm uses and the maximum output it can produce from them, given the state of technology. It is usually written q = f(L, K), where q is output, L is labour and K is capital.
In more detail
The production function lies behind the cost curves. In the short run, when one input is fixed, extra units of the variable input first add more and then less to output, which is the law of variable proportions. This pattern of marginal product explains why marginal cost first falls and then rises.
Example
A bakery with one oven may bake 20 loaves with one worker, 50 with two and 70 with three, showing how output depends on labour for a fixed oven.
Key points
- Gives the maximum output for given inputs.
- Short run: at least one input is fixed.
- Long run: all inputs can change.
Common mistake
Thinking it states actual output. It states the maximum possible output.
Related terms
Where it is explained
This term is explained in Class 12 Microeconomics Chapter 3: Production and Costs.