In the simplest case, where there are only two inputs, labor (L) and capital (C) and one output (Q), becomes a production function. Therefore, the level of output (Q) depends on the amount of different inputs (L, C, N) available to the firm. Mathematically, such a basic relationship between input and output can be expressed as: – In other words, we can say that the production function is an indicator of the physical relationship between the two inputs and outputs of a firm. Thus, the production function shows how much production we can expect if we have too much labor and so much capital as well as labor. In simple terms, the production function refers to the functional relationship between the quantity of a good produced (production) and the factors of production (input). What is the relationship between Input and Output? According to the principle of equilateral returns, the maximum output of any product can be achieved, when the marginal return of all the means of production is equal to each other. The manufacturer achieves the best combination by applying the principles of same-marginal return and substitution. For this, he decides to maximize production at the lowest cost through the best combination of factors of production. Profit maximization is the only aim of the producer. Therefore, the manufacturer combines all four factors of production to technical ratios. This is evident from the fact that no single commodity can be produced without the help of one of these four factors of production. Production is the result of four factors of production i.e., land, labor, capital and organization support.
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