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free smude MBA Semester 1 assignments answer for mb0042 Q1. What is production function and its uses? Explain the two types of production functions.

Answer:
The entire theory of production centres revolves around the concept of production function.
Production function explains the quantitative relationship between the amounts of inputs used to get a particular physical quantity of outputs. The ratios between the two quantities are of great importance to a producer to take his decisions in the production process. The production is purely physical in nature and is determined by the quantum of technology,
availability of equipments, labour, raw materials, etc. employed by a firm.

Some of the important uses of production function:
1. Production function can be used to calculate the maximum output-input combination for a given cost.

2. Production function is also useful in finding an optimal and economic combination of inputs for getting a certain level of output. The utility of employing a unit of variable factor input in the production process can be better judged with the help of production function.

3. It also helps in making long run decisions. If returns to scale are increasing, it is wise to employ more factor units and increase production. If returns to scale are diminishing, it is unwise to employ more factor inputs & increase production.

There are two types of production functions. They are as follows:

1. Short run production function – In Short run production function case, the producer will keep all fixed factors as constant and change only a few variable factor inputs. In the short run, we come across two kinds of production functions:
  • Quantities of all inputs both fixed and variable will be kept constant and only one variable input will be varied, for example, law of variable proportions.
  • Quantities of all factor inputs are kept constant and only two variable factor inputs are varied, for example, iso-quants and iso-cost curves.

2. Long run production function – In Long run production function case, the producer will vary the quantities of all factor inputs, both fixed as well as variable in the same proportion, for example, the laws of returns to scale.

Each firm has its own production function which is determined by the state of technology, managerial ability, organisational skills, etc of a firm. It may be in the following manner:
1. The quantity of inputs may be reduced while the quantity of output may remain same.
2. The quantity of inputs may be reduced while the quantity of output may increase.

3. The quantity of inputs may be kept constant while the quantity of output may increase.

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