A production function measures the physical output of a firm’s production process to the physical inputs or factors of production. It shows the relation between total production and inputs. A production function is usually expressed in the form:
Q = f(L, K)
Where Q is the quantity of production (or the output), L is the quantity of labour input, K is the quantity of capital input, and f refers to a functional equation¹. The production function relates the amount of resources necessary for a certain level of output. From the production function it is possible to then derive the marginal products of capital and labour. A production function can also be used to derive an isoquant curve when the output is fixed. An example of a Cobb-Douglas form of the production function is as follows:
Q = AKL
'A' is the total factor productivity. In this case the economy is experiencing increasing returns to scale.
1. Ragan, Chrisopher. Macroeconomics/Christopher T.S. Ragan, Richard G. Lipsey. – 13th Canadian ed.