Production Function

Definition: The Production Function shows the relationship between the quantity of output and the different quantities of inputs used in the production process. In other words, it means, the total output produced from the chosen quantity of various inputs.

Generally, production is the transformation of raw material into the finished goods. These raw materials are classified as land, labor, capital or natural resources. These may be fixed or variable depending upon the nature of the business.

This function establishes the physical relationship between these inputs and the output. The efficiency of this relationship depends on the different quantities used in the production process, the quantities of output and the productivity at each point. It can be shown algebraically:

O = f (I₁, I₂, I₃, I₄…….. Z_n)

Where, O = quantity of output

I₁, I₂, I₃ = Quantity of different inputs

It can be classified on the basis of the substitutability of the inputs by other inputs:

1. Fixed Proportion Production Function
2. Variable Proportion Production Function
3. Linear Homogeneous Production Function
4. Cobb. Douglas Production Function
5. Constant Elasticity of Substitution 

Thus, it is a comprehensive function that involves different activities ranging from the production of output from the given inputs and its distribution by the marketing division of the organization.