The transformation of inputs into outputs is determined by the technology in use. Limited quantities of inputs will yield only limited quantities of outputs. The relationship between the quantities of inputs and the maximum quantities of outputs produced is called the "production function."
But how do these outputs change when the input quantities vary? Let's take a look at an example of a production function.
In general, we would allow for varying amounts of land, labor and capital. However, in this example, labor will be the only input, for the sake of simplicity.
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