Production
6-1. Definition: It is an economic process
that uses resources to create a commodity that is suitable for use by consumers.
This process can include
manufacturing, storing, shipping, and packaging.
Because it is a flow concept,
production is measured as a “rate of output per period of time”.
6-2. Factors
of production: Factors of
production are the resources used in the production of goods and services in
economics. There are four factors
of production:
· Land or natural
resources, the payment for land is rent.
· Labor –
human effort used in production, the payment for labor is a wage.
· Capital
the payment for capital is called interest.
· entrepreneurs the payment for entrepreneurs called profit.
6-3.Production
Function
There are several ways of specifying the production
function.
In a general mathematical form, a production function can
be expressed as:
Q = f(X1,X2,X3,...,Xn)
where:
Q = quantity of output
X1,X2,X3,...,Xn=factor inputs (such as capital, labour, land
or raw materials).
One formulation is as a linear function:
Q = a + bX1 + cX2 + dX3,...
where a,b,c,and d are
parameters that are determined empirically.
Another is as a Cobb-Douglasproduction
function (multiplicative):
Q=aXb1 Xc2
6-4.The production function as a graph
Any of these equations can be designed on a graph. A
typical production function is shown in the following diagram.