Production Function A production function shows the functional relationship given by technology between a firm’s physical rates of input and its physical.

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Presentation transcript:

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

Value Relationships t Value Total Product (TVP) VTP = TPP * P t Value Marginal Product (MVP) VMP = MPP * P t Marginal Revenue Product (MRP) MRP = MPP * MR t Marginal Factor Cost (MFC)

Functional Relationships in Value Terms

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