Question

We can infer the characteristics of the production technology by observing the responses of rational producers to input and output prices. Describe how this is possible using the example of a producer producing an output y using one input . How would you draw inferences about y = f(x) based on the pro duction decisions of a producer or producers. Use a diagram to illustrate your answer and state any assumptions you make.

Answer 1

Production function - It shows the direct relation between input (variable only) and output. we can write production function as y = f(x) . Unoxo Xошput - input. There are your factor of production 1) Land . 4) Entrepreneurship 2) Labour 3) Capital To make it easy lets assume that only one production factor exists, which is labour (variable fictor), then we can show the function as bonomo xwruts (input) I with this graph, we can say that X is the function ofy, Tuenich means as x (input is increasing ), 4 ( output is also increasing as per below mentioned Assumption; o 1) other factor remains constant (variable only) 2 fixed factor is increasing when marginal product get started decreasing so that marginal product Can never be diminishe I Technology is constant.