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Production Function

Production Function. A production function shows the functional relationship given by technology between a firm’s physical rates of input and its physical rates of output per unit of time. TPP = f ( a, b, c, … ). Characteristics of a Production Function.

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Production Function

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  1. Production Function A production function shows the functional relationship given by technology between a firm’s physical rates of input and its physical rates of output per unit of time. TPP = f ( a, b, c, … )

  2. Characteristics of a Production Function • Production refers to the transformation of inputs into output; • A production function is a flow concept; • A production function is a physical, technological, or engineering concept, and yet it has an economic dimension to it; and • In production analysis, factors of production can be separated into fixed and variable factors.

  3. Value Relationships • Total Value Product (TVP) TVP = TPP * P • Marginal Value Product (MVP) MVP = MPP * P • Marginal Revenue Product (MRP) MRP = MPP * MP • Marginal Factor Cost (MFC)

  4. Functional Relationships in Value Terms

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