Theory of production

Introduction to production

In the real world, most of the people are engaged in one or many activities. They use different materials, tools, and techniques to conduct their activities. The things they use in the process of production are called inputs and whatever they get out of their activities are called output.
Production is the process of creating utility in goods and services. In other words, production is the process of transforming inputs into outputs. Firms combine inputs to bring output. The state of technology indicates how inputs are used efficiently. The prime objective of any firm is to attempt to minimize the cost of production and maximize the sale of output.

Concept of the production function

Production is defined as the functional relationship between physical input and physical outputs. In general form, it tells us that the production of a commodity depends on specific inputs. It can be expressed as:

Q=ʄ (Lb, L, K, M, T, t)

Where,
Lb =Land and building
L=Labour
K=Capital (kapitol)
M= Material
T= Technology
t= time
Q= Quantity produced

For the sake of convenience and simplicity, we consider only two factors:
Labor (L)
Capital (K)

Now, production can be expressed as Q= ʄ (L, K)