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In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, goods and services. The utilized amounts of the various inputs determine the quantity of output according to the relationship called the production function .
The area of economics that focuses on production is called production theory, and it is closely related to the consumption (or consumer) theory of economics. [2] The production process and output directly result from productively utilising the original inputs (or factors of production). [3]
The economic value of physical outputs minus the economic value of physical inputs is the income generated by the production process. By keeping the prices fixed between two periods under review we get the income change generated by a change of the production function.
Wire-grid Cobb–Douglas production surface with isoquants A two-input Cobb–Douglas production function with isoquants. In economics and econometrics, the Cobb–Douglas production function is a particular functional form of the production function, widely used to represent the technological relationship between the amounts of two or more inputs (particularly physical capital and labor) and ...
This is a list of production functions that have been used in the economics literature. Production functions are a key part of modelling national output and national income . For a much more extensive discussion of various types of production functions and their properties, their relationships and origin, see Chambers (1988) [ 1 ] and Sickles ...
Economic welfare is created in a production process, meaning all economic activities that aim directly or indirectly to satisfy human wants and needs. [3] The degree to which the needs are satisfied is often accepted as a measure of economic welfare. In production there are two features which explain increasing economic welfare.
The theory entails that there is a limit to how much one factor can be substituted for another. When production reaches a point where substitution between the factors becomes impossible (MP LK), the isoquant becomes positively sloping. No rational entrepreneur will operate at a point outside the ridge lines (Region of Economic Nonsense). [1]
In economics, the cost-of-production theory of value is the theory that the price of an object or condition is determined by the sum of the cost of the resources that went into making it. The cost can comprise any of the factors of production (including labor, capital, or land) and taxation .