Question

Why is production function useful in the analysis of firm's behaviour?

Answer 1

The production function shows the relation between the inputs and outputs of the production process. 

It gives us the estimates of how much input should be put in to have a desirable output.

This function is mostly useful for the management as it gives a budgeted profit beforehand which helps in decision making regarding the employment of resources.

It also helps the company to be prepared for the upcoming losses if any.

Answer 2

The production function consists of the total output of the produced goods through the ‘process of production’. It is dependent on the ‘physical inputs or factors of production’.

Explanation:

• It is a useful analysis of a firm’s behaviour since it defines the total ‘amount of output’ that can be obtained from a given ‘number of inputs’ of factors of production.

• The production function helps the business organizations in making decisions regarding the manufacturing of their products.  

• It depends on the amount of commodity that sells in the market and the ‘demand for the products’.  

• It is dependent upon the total production of goods form the different factors of production and the costs involved in the process.