Essay Title: 

Outline the importance of production functions in management decision-making

March 31, 2016 | Author: | Posted in business, mathematics and economics

2832986 Outline the importance of production functions in management decision-making

Introduction

This seeks to outline the importance of production functions in management decision-making . This posits that production functions play very important roles in business decision making First let us define what is production function is . In the field of microeconomics , Wikipedia (2006 ) said that a production function asserts that the maximum output of a technologically-determined production process is a mathematical function of input factors of production . It further said that considering the set of all technically feasible combinations [banner_entry_middle]

of output and inputs , only the combinations encompassing a maximum output for a specified set of inputs would constitute the production function (Paraphrasing made . In this sense production function is a state or condition when product produced is maximized given the amount inputs made . This definition seems to be consistent with Wikepedia (2006 ) further definition as follows : A production function can be defined as the specification of the minimum input requirements needed to produce designated quantities of output given available technology . It is usually presumed that unique production functions can be constructed for every production technology

We also define management decision making which simply means that people in charge of the management of the firm must attain their goals of delivering the needs and want of it customers not only in the short-run also in the long-run

Using the definition of the production function as the maximum out or the minimum input requirement would be consistent with the goals and objectives of management . Having attained this state would make the interest of consuming , managers and the owners of business come into an agreement . This would attaining economic agenda which Wikipedia (2006 seemed to sustained when it explained that by assuming that the maximum output technologically possible from a given set of inputs is achieved economists using a production function in analysis are abstracting away from the engineering and managerial problems inherently associated with a particular production process . Hence , it argued that engineering and managerial problems of technical efficiency are assumed to be solved , so that analysis can focus on the problems of allocative efficiency . On this basis , it posited that the firm is assumed to be making allocative choices concerning how much of each input factor to use , given the price levels (Helfert , 1994 ) of the factor and the technological determinants represented by the production function . Thus , a decision frame , in which one or more inputs are held constant , may be used . To illustrate , it may be assumed that capital is fixed or constant in the short run , and only labour variable , while in the long run , both capital and labour factors are variable , but the production function itself remains fixed , while in the very long run , the firm may face even a choice of technologies represented by various , possible production functions (Wikipedia , 2006 (Paraphrasing made To relate production function with decision-making , Wikipedia (2006 ) said the primary purpose of the production function is to address allocative efficiency in the use… [banner_entry_footer]

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