Editing Physical capital (section)

==Production function==
[[Production function]] definition by N.G. Mankiw:
''Production function is the relationship between the quantity of inputs used to make a good and the quantity of output of that good.''<ref>MANKIW, Gregory N., TAYLOR, Mark P., Economics, 2015,03, P.136, {{ISBN|978-1-4080-9379-5}}</ref>

Co-operation of four factors of production [[Capital_(economics)|capital]], [[Land (economics)|land]], [[Work (human activity)|labor]] and [[organization]] crates the result in production of goods, biased on this fact no goods can be produced without the help of these four factors, actually all four are usually used in some technical proportion, with the aim to maximize profit with a minimal cost by the best combination of factors of production. Best combination for producer is enabled by applying the principles of equip-marginal returns and substitution. The principle of equip-marginal returns states that, any producer can have maximum production only when the [[marginal returns]] of all the factors of production are equal. For instance, when the marginal product of the land is equal to that of labour, capital and organisation, the production becomes maximum. Production function shoes how much [[output (economics)|output]] producer can expect in exact proportion of labour and capital as well as of labour etc. Differently, production function is an indicator of the physical relationship between the inputs and output of a firm.
Like the demand function a production function is for a definite period. It shows the flow of inputs resulting into a flow of output during some time. The production function of a [[firm]] depends on the state of [[technology]]. With every development in technology the production function of the firm undergoes a change.
The new production function brought about by developing technology displays same inputs and more output or the same output with lesser inputs. Sometimes a new production function of the firm may be adverse as it takes more inputs to produce the same output.
Mathematical description of basic relationship between inputs and outputs:

Q = f (L, C, N)
Q = Quantity of output
L = Labour
C = Capital
N = Land

The level of output (Q) depends on the quantities of different inputs (L, C, N) available to the firm. In the simplest case, where there are only two inputs, labour (L) and capital (C) and one output (Q), the production function becomes.
Q =f (L, C)
The production function is a technical or [[engineering]] relation between input and output. If the natural laws of technology remain unchanged, the production function remains unchanged.