The relationship between inputs and outputs of a firm is given by _____.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Production function
The production function shows the technical relationship between inputs and outputs in a firm. It tells us how much output can be produced using different combinations of inputs like labor, capital, and raw materials. It is usually expressed as:
Q = f(L, K)
where
Q = Output,
L = Labor,
K = Capital
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Cost function – Shows the relationship between output and total cost, not between inputs and output directly.
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Opportunity cost – Refers to the cost of the next best alternative foregone, not a functional relationship.
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Revenue function – Shows the relationship between output sold and total revenue, not input-output.