Answer:
the relationship between output and the factors of production
Explanation:
A production function is an economic concept used to calculate output according to the combination of inputs (production factors). For example, if a firm uses two factors of production: capital (K) and labor (L), the production function shows how the different combination of capital and labor generates different outputs.
Quantity = Function (K;L)
Q = F (K;L) is the production function.
Companies will seek the combination of production factors that will be able to optimize the production function. In other words, there will be a quantity of capital and labor that will optimize the amount produced at the lowest possible cost.
For example:
Q = F (K; L)
Q = F (1;10) = 20
Q = F (8;2) = 15
Q = F (5;5) = 25
By using 1 amount of capital and 10 labor this fictional company produces 20 units. By combining 8 quantities of capital and 2 labor, the production will be 15. The best combination found was 5 units of each factor, which generated a production of 25.
Note: Each company will have a different production function and the best combination of factors may differ. Some companies are capital intensive, others labor intensive. The big challenge for companies is to find the best combination to optimize production, reducing costs and thus increasing revenue.
