The production function is based on the following assumptions.
1.
The level of technology remains constant.
2.
The firm uses its inputs at maximum level of efficiency.
3.
It relates to a particular unit of time.
4.
A change in any of the variable factors produces a corresponding change in the
output.
5. The inputs are divisible into
most viable units.
What
is the Managerial Use of Production Function?
The
production function is of great help to a manager or business economist. The
managerial uses of production function are outlined as below:
1.
It helps to determine least cost factor combination: The production function is a guide to the entrepreneur to
determine the least cost factor combination. Profit can be maximized only by
minimizing the cost of production. In order to minimize the cost of production,
inputs are to be substituted. The production function helps in substituting the
inputs.
2.
It helps to determine optimum level of output: The production function helps to determine the optimum level
of output from a given quantity of input. In other words, it helps to arrive at
the producer's equilibrium.
3.
It enables to plan the production: The
production function helps the entrepreneur (or management) to plan the
production.
4. It helps in decision-making:
Production function is very useful to the
management to take decisions regarding cost and output. It also helps in cost
control and cost reduction. In short, production function helps both in the
short run and long run decision-making process.
Define
Inflation: Inflation
can be defined as a sustained or continuous rise in the general price level or,
alternatively, as a sustained or continuous fall in the value of money.
Several things should be noted about
this definition. First, inflation refers to the movement in the general level
of prices. It does not refer to changes in one price relative to other prices.
These changes are common even when the overall level of prices is stable and
the rise in the price level must be somewhat substantial and continue over a
period longer than a day, week, or month.