A production function Φ(x1, ..., x n ) represents the maximum output u that can be achieved using input vector x = (x1, ..., x n ). We shall use the symbol u instead of y to emphasize that output is a scalar. A production function can be used by a production economist to undertake different types of sensitivity analysis and to compute different measures of technical efficiency. We begin our discussion of production functions by describing popular parametric forms used for its estimation. Next, we formally describe different ways to estimate rates of substitution among input factors and to measure scale properties. We close this chapter with a description of homothetic production functions, a subclass used often in the theory of productivity analysis.
Unable to display preview. Download preview PDF.