Question

What is the basic criteria for determining the nature of production?

Answer 1

The basic criteria is related to the factors which may affect the production in general.

Since, production function gets determined depending upon the aims and objectives of a certain type of business. For instance if the business has the objective of profit maximization then that business will choose the nature of production accordingly. It will try to use those factors of production which will allow maximum profit to prevail. Like, using capital intensive machinery to get technological economies of scale.

However, if the aim is to provide service to community or give opportunities to workers than the scenario will be different.

So the aims of a business and the factors which affect its components of production matter. Other things like governmental policies also matter.  

Answer 2

The basic criteria for determining the nature of production are dependent on the relationship between the company’s physical inputs and outputs depending on the available state of technical knowledge. The production function depends on the ‘maximum amount of output’ that can be produced from a given set of inputs at a given time.

Explanation:

• The production function refers to the ‘maximum amount output’ which can be produced from the inputs.  

• If the level of input changes then the output will also change simultaneously. The inputs of the factor of production are land, labor, and capital.  

• These inputs help the business organizations to work on the quantities of the ‘productive resources’ and their ‘possible combinations’ used for the ‘purposes of production’.

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