There are many uses of the production function from the point of view of the managerial effectiveness. The production function refers to the relationship between the inputs and the output produced. Inputs are also represented as factors of production or resources. As the relationship is based on the physical and technical characteristics of the inputs thus, the prices of the inputs and the output are ignored.
It can also be said that the study of the production function is based on establishing the maximum output which can be obtained from a given set of inputs along with technology. That is, computing the least-cost combination of inputs for a given level of inputs. And it adds to be a responsibility of the manager to choose the most feasible combination from the ones available with him. As even though, the production functions concept may be abstract or unrealistic, however, it does provide logical and useful analysis.
The manager may use the information available from the production function to increase the returns from expenditure. The manager must ensure that the marginal revenue productivity of a variable factor exceeds its price and any additional use of the inputs is thereby stopped. The production functions assist in making decisions plus provides guidance relating to, obtaining the maximum output from a given set of inputs along with obtaining the output with minimum aggregation of inputs.
It also provides for an understanding of the various scales of economies. It helps in decision-making with the help of electronic computers. It was with the introduction of the computers that the managers were able to figure out complex production functions and thereby decide whether to increase or decrease the production in the presence of constant returns to scale.
The managerial use of the production function may be summarized as follows:
- It may be used to compute the least-cost combination of inputs for a given output.
- It may be used by the manager to obtain the most appropriate combination of input which yields the maximum level of output with a given level of cost.
- Helps the managers in deciding the additional value of variable input employed in the production process.
- Production functions help the managers in taking long-run decisions. As with increasing returns to scale the production may be increased through a proportionate increase in. the factors of production. However, with a decreasing return to scale, an increase in all the factors of production may not be desirable.