Understanding Production Function and Cobb-Douglas Production Function

Running Head: POLITICAL ECONOMY
Political Economy
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1POLITICAL ECONOMY
Table of Contents
Production Function.........................................................................................................................2
Features of Production Function..................................................................................................3
Cobb-Douglas production function.................................................................................................4
Reference list...................................................................................................................................8

2POLITICAL ECONOMY
Production Function
Output is produced as a result of interaction between four factors of production namely
land, labor, capital and organization. In the production process, producers combine all the four
factor of production in a certain technical proportion. Objective of producer is to maximize
profit. The producer aims to ensure best possible combination with application of the law of
equi-marginal return and substitution (Fine 2016). According to this law, it is possible for the
producer to produce maximum output only when all the factors of production give equal return.
Production function signifies a technical relation between factor inputs and quantity of
produced output. It depicts a pure technical relation that connects factor of production and
output. The production function thus shows how much output can be expected to produce given a
certain amount of labor and capital (Baumol and Blinder 2015). In other words, production
function represents a physical relation between output and input used by a firm. Production
function is said to represent a physical relation, as money price does not reflect money prices.
Like demand function, production function is also specific to a definite period. It symbolizes
flow of input resulting in flow of output. Production function of a firm is subject to state of
technology. With change in technology production function also undergoes a change (McKenzie
and Lee 2016).
The basic form of production function can be expressed as
Q = f (L, K, N)
Q: Quantity of produced output
L: Labor