A given output can be produced with
many different combinations of factors of production (land,
labor, capita! and organization) or inputs. The output, thus, is
a function of inputs. The functional relationship that exists
between physical inputs and physical output of a firm is called
In abstract term, it is written in
the form of formula:
Q = f (x1, x2,
Q is the maximum quantity of output
and x1, x2, xn are quantities
of various inputs. The functional relationship between inputs
and output is governed by the laws of returns.
The laws of
returns are categorized into two types.
law of variable proportion
seeking to analyze production in the short period.
returns to scale seeking to analyze production in the long