Production function

(noun)

Relates physical output of a production process to physical inputs or factors of production.

Related Terms

Examples of Production function in the following topics:

  • Defining the Production Function

    • In economics, a production function relates physical output of a production process to physical inputs or factors of production.
    • Increasing marginal costs can be identified using the production function.
    • If a firm has a production function Q=F(K,L) (that is, the quantity of output (Q) is some function of capital (K) and labor (L)), then if 2Qproduction function has increasing marginal costs and diminishing returns to scale.
    • Another common production function is the Cobb-Douglas production function.
    • This production function is given by Q=Min(K,L).

  • Aggregate Production

    • The aggregate production function examines how the productivity depends on the quantities of physical capital per worker and human capital per worker.
    • The production function relates the physical outputs of production to the physical inputs or factors of production.
    • Production functions assume that the maximum output is attainable from a given set on inputs.
    • Aggregate production functions study the short-run inputs and outputs of a firm or economy.
    • The production function of a firm or economy can be graphed using the total, average, and marginal products.

  • Measuring Productivity

    • Productivity is represented by production functions, and is the amount of output that can be generated from a set of inputs.
    • In order to generate meaningful information about the productivity of a given system, production functions are used to measure it.
    • There are a variety of ways to approach the measuring of productivity in the context of production functions:
    • Functional Form: One way a production function can be illustrated is through the following equation$Q = f(X_1,X_2,X_3,...
    • Leontief Production Function: The Leontief Production Function assumes a technologically pre-determined set of proportions for the factors of production (i.e. no ability to substitute between factors.

  • Marginal Product of Labor (Physical)

    • When production is discrete, we can define the marginal product of labor as ΔY/ΔL where Y is output.
    • When production is continuous, the MPL is the first derivative of the production function in terms of L.
    • Graphically, the MPL is the slope of the production function.
    • gives another example of marginal product of labor.
    • The law states that "as units of one input are added (with all other inputs held constant) a point will be reached where the resulting additions to output will begin to decrease; that is marginal product will decline. " The law of diminishing marginal returns applies regardless of whether the production function exhibits increasing, decreasing or constant returns to scale.

  • Productivity

    • The income growth caused by increased production volume is determined by moving along the production function graph.
    • The income growth corresponding to a shift of the production function is generated by the increase in productivity.
    • The change of real income signifies a move from Point 1 to Point 2 on the production function .
    • There are two parts of the production function.
    • Total productivity is that part of real income change which is caused by the shift of the production function.

  • Organizational Requirements for Product Development and Management

    • Product development combined with product marketing make up the product management function within an organization.
    • Product management is an organizational lifecycle function within a company dealing with the planning, forecasting, or marketing of a product or products at all stages of the product lifecycle.
    • Product development – the process of bringing new products to the marketplace – combined with product marketing, make up the product management function that oversees the launch of a company's new products.
    • Product management can be a function separate on its own, or fall under marketing or engineering.
    • In some companies, the product management function is the hub of many other business activities around the development and launch of a product.

  • Supply Function

    • A supply function is a model that represents the behavior of the producers and/or sellers in a market.
    • Like the demand function, supply can be viewed from two perspectives.
    • Figure III.A.5 is a graphical representation of a supply function.
    • The equation for this supply function is Qsupplied= -10 + 2P.
    • Table III.A5 also represents this supply function.

  • Matrix Structure

    • The matrix structure groups employees by both function and product .
    • An example would be a company that produces two products, "product a" and "product b. " Using the matrix structure, this company would organize functions within the company as follows: "product a" sales department, "product a" customer service department, "product a" accounting, "product b" sales department, "product b" customer service department, and "product b" accounting department.
    • Weak or functional matrix: A project manager with only limited authority is assigned to oversee the cross-functional aspects of the project.
    • The functional managers maintain control over their resources and project areas.
    • It brings the best aspects of functional and projectized organizations.

  • Specialization by Skillset

    • Specialization by skillset can be seen in functional departmentalization, grouping workers by the functions they perform.
    • An automobile company is an example specialization of labor where engineers design cars in functional groups (i.e., research and development departament) and facilities distinct from the production line workers that actually produce the car at the plant.
    • Coordination and specialization of tasks are centralized in a functional structure, which makes producing a limited amount of products or services efficient and predictable.
    • Moreover, efficiencies can further be realized as functional organizations integrate their activities vertically so that products are sold and distributed quickly and at low cost.
    • For instance, a small business could make components used in production of its products instead of buying them.

  • Product Line Breadth

    • What products will be offered (i.e., the breadth and depth of the product line)?
    • You may also hear the product line breadth referred to as the product width, product assortment width, and merchandize breadth.
    • The product mix (sometimes called "product assortment") is made up of both product lines and individual products.
    • A product line is a group of products within the product mix that are closely related, either because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets or fall within given price ranges.
    • An individual product is a particular product within a product line.