What care should be taken while collecting the data for the estimation of a production function?
The following points must be kept in mind during the collection of data for the estimation of a production function. In other words the following are the limitations that the manager needs to keep in mind while collecting data:
- The time-series and cross-section analysis tend to be restricted to a relatively narrow range of observed values. And any extrapolation outside the production function provides misleading results.
- The assumption underlying the time-series analysis of the production function assumes that all the observed values of the variable pertain to one and the same production function. In other words, it may also be said that the technology is constant.
- As production function provides only efficient function thus if the available data is less than nominal then the data is not included for the analysis.
- One way to handle the issue is by using the engineering data however, it may only concentrate on the manufacturing activities.
- The conceptual and statistical problems in measuring data on inputs and output may also arise in the process.