Some economists define production broadly as all economic activity other than consumption. shipping. This can include manufacturing. They see every commercial activity other than the final purchase as some form of production . storing.refers to the economic process of converting of inputs into outputs. Production . and packaging. Production uses resources to create a good or service that is suitable for exchange.

3. There are three aspects to production processes: 1. Firm/ Seller/ Producer .the quantity of the good or service produced.the temporal and spatial distribution of the good or service produced. production is measured as a ´rate of output per period of timeµ. 2. Production is a process.the form of the good or service created. and as such it occurs through time and space. Because it is a flow concept.Deciding about the input combination to profit maximization & cost minimization .

.. land or raw materials)..... labour.refers to the relationship between inputs that are required and outputs that are obtained Input .X3.X2.X2..X3..refers to the different ingredients used to produce goods and services Outputs ² refers to the goods and services that result from the production process A production function can be expressed in functional form as the right side of: Q = f(X1.Xn = quantities of factor inputs (such as capital.Xn) where:Q = quantity of outputX1.PRODUCTION FUNCTION . .

Production Function -specifies the units of output that can be produced from a given set of summarizes the characteristics of existing technology at a given point in time. . .shows the most output that existing technology permits the firm to extract from each quantity of inputs. it shows the technological constraints that a firm must reckon with. (How many units of inputs must be combined to produce so much of an output) .

machinery. building. (ex: plant & equipment.TYPES OF INPUTS Fixed Input ² is one whose quantity cannot change during the period of time under consideration. factory. and transportation facilities) Variable inputs ² is one whose quantity can be change during the relevant period. office. (ex: labor) .

the length of time which the firm can vary the amount of productions input to be used.PRODUCTION PERIODS . Immediate period.the time is too short for the firm to vary the quantity of is inputs. .

.THE SHORT RUN AND LONG RUN Short Run ² defined as the period of time in which at least one of the firm·s inputs is fixed (cannot be changed) .all resources can be shifted from one form of production into another .generally understood to mean the length of time during which the firm·s plant and equipment are fixed. Long Run ² is that period of time in which all inputs are variable.

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