Talk:Production function

Production function

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193.219.222.198 06:38, 27 October 2006 (UTC)PONSAK LUKA KUDOR plk4luka@yahoo.com—== The stages of production == I changed the additive production function to the linear production function. I don't think additive is the right word.

--Sanjaya 19:13, 18 March 2006 (UTC) The discussion on the operational significance of division of a production function where the quantity of some factors can not be altered into three stages suffers from confusion over efficiency (productivity) and profitability. At a time when pefect competion was accepted both as the ideal and the norm, and other market forms were considered interesting aberrations, marking out Second Stage as the stage where a rational producer would operate could be made without any problem.

The argument in the article that a producer will not like to operate in the first stage is confusing. It is acknowledged later that (s)he may (in the short run, where not all factors can be varied). Strictly speaking, rational producers who are not price takers may operate in this stage. It is not an aberration to be mentioned in passing. If the statement bout producer not operating in the first stage does not explicitly restrict the statement to price-taking producers, the scope for confusing efficiency and profitability is wide open.

In fact, the article goes on to point out that the average productivity of the fixed factor too is increasing in the first stage (a trivial point anyway, since as long as the output increases the output to fixed factor ratio will increase). It reinforces the oft misplaced reading that treats the increases in the productivity of fixed factor and that of the variable one symmetrically; it ignores that the variable factor is a choice variable and the fixed one is not.

Similarly, the argument in the article that the optimum factor combination occurs in the second stage makes sense only if optimum combination is understood as a situation where the efficiencies of both fixed and variable facors are not maximum! Optimum understood as profit maximising can occur in the first stage too. A price-taking producer will choose not to produce (use this optimum) as it will not be able to recover variable costs fully (since the average variable cost would be decreasing wioth output.)A non-price-taking producer may, however, produce using such a combination.

The efficiency based division of the production function into three stages can indeed be meaningfully made if care is taken not to draw any conclusion about operational decisions of rational producers. While any argument about producers' choices must make explicit references to the market conditions under which the producers are supposed to be operating.

Though the discussion about the first stage is mostly muddled because of the confusiion between profitablility and efficiency, the discussionon why a ratiional producer does not operate in stage three is sometimes similarly faulty.

It is sometimes loosely argued that since output can be increased by reducing the amount of variable factor, it should be irrational to oerate in that stage. I have found many textbooks stretching this argument into a horrendous staement that a rational producer will not operate in this stage even if the variable factor could be had for free! If the profit maximising output is not the maximum possible output (end of the third stage), then it does not make a difference whether the same is produced in the first, second or third stage when variable factor is free. Infact, the confusion between productivity and profitability is replaced by an worse confusion between output maximisation and profit maximisation.

Conceptual problems with the Production Function

BruceW07 19:44, 26 April 2006 (UTC) The explanation of the production function, and the allied entry on "Basic Production Theory", do not, to my mind, explain adequately the problematic aspects of the production function, as a theory. Sanjaya raises an interesting point along these lines, but the problems of too little skepticism are broader and deeper. For example, it is confidently asserted that the production function relates physical inputs and outputs; although that has become common textbook-speak, it does not contribute to an adequate understanding of the place of the production function in the theory of the firm; in the usual theoretical framework, it would be just as accurate to say that the production function relates the distribution of income from final product to factors of production. That was Wicksteed's idea in introducing the idea of a production function, and it remains a central aspect of the role of the production function in the theory of the firm, supporting the marginal productivity theory of income distribtion.

The production function allows economists to abstract away from any analysis of management or engineering or other technical matters in its consideration of the role of the firm in production, and to focus exclusively on the question of allocative efficiency; technical efficiency is simply assumed. This, by itself, is problematic.

Whether one conceives of the production function as relating output to "factors" or "inputs" is itself, a source of considerable conceptual confusion. If "inputs", as Pareto apparently saw the matter, the production function is fairly coherent: directly analogous to a recipe for bread, for example. For a given bread "technology", output will depend on quantitative inputs -- so many eggs, so much flour, so much time in the oven at x temperature, etc., with some input substitution. If the production function is conceived of, as relating output to "factors" of production, however, it is far more problematic; it is not at all clear that output can be conceived to be a mathematical function of >factor< input. When the machinery of production sit idle much of the time, it is difficult to conceive of in what sense we can say that output is a function of factor input: in the bread example, what are we to make of the oven sitting idle?

Sentence structure

I don't know enough about the topic to confidently edit this, but there are some problems with sentence structure that make the meaning unclear.

Here is the opening sentence.

In microeconomics, a production function asserts that the maximum output of a technologically-determined production process is a mathematical function of input factors of production.

A production function doesn't assert anything. A corrected version might say something like, "Microeconomists assert that the maximum output of a technologically-determined production process is a mathematical function of input factors of production." However, that may not be quite what the author means, so I won't make this change, or others of this kind. Someone should take a look at this sort of thing, though. Ordinary Person 11:16, 5 August 2006 (UTC)