10.3 Production Function

Production is the transformation of inputs into outputs. Inputs are the factors of production: land, labor and capital. The transformation of inputs into outputs is determined by the technology in use. Limited quantities of inputs will yield only limited quantities of outputs. The relationship between the quantities of inputs and the maximum quantities of outputs produced is called the "production function."

The production function relates the output of a firm to the amount of inputs, normally capital and labour. It is important to note that the production function describes technology, not economic behavior. A firm may maximize its profits given its production function, but generally takes the production function as a given element of that problem.

Return to Scale

Producers normally inject input with a view to obtaining output at the end of the production. Return to scale therefore attempts to explain the possible outcome of production process having injected the required inputs. One of three possible outcomes may be obtained thus:
Increasing return to scale

Increasing return to scale refers to the situation which the producer obtained output more than what he has injected into the production. For example, farmers who happened to sow one sack of Rice and at the end of the farming season, 5 sack of Rice.

10.3 Production Function

Constant return to scale

This is said to be a balance point between what has been injected in the production and what is obtained as final product. A farmer who harvested 2 sack of Maize at the end of farming season having sowed the same amount, that farmer is said to be at a constant return to scale.

Decreasing return to scale

This is directly opposite of the first one and in this situation the producer obtain less that what he has injected into the production process.

The Concept of Total, Average and Marginal Products

Total Product (TP)

This refers to the total output obtained as a result of employing unit of labour in the production process. Mathematically, it is obtained as follows;

Average product X output/labour

10.3 Production Function

Average Product (AP)

Average product refers to as product per unit of labour employed. In other words, it is the total product divided by the unit of labour.


Marginal Product (MP)

Marginal product is the charge in total product as a result of charge in the unit of labour.