Leontief production function
Encyclopedia
In economics
, the Leontief production function or fixed proportions production function is a production function
that implies the factors of production
will be used in fixed (technologically pre-determined) proportions, as there is no substitutability
between factors. It was named after Wassily Leontief
and represents a limiting case of the constant elasticity of substitution
production function.
The function is of the form
where q is the quantity of output produced, z1 and z2 are the utilised quantities of input 1 and input 2 respectively, and a and b are technologically determined constants.
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, the Leontief production function or fixed proportions production function is a production function
Production function
In microeconomics and macroeconomics, a production function is a function that specifies the output of a firm, an industry, or an entire economy for all combinations of inputs...
that implies the factors of production
Factors of production
In economics, factors of production means inputs and finished goods means output. Input determines the quantity of output i.e. output depends upon input. Input is the starting point and output is the end point of production process and such input-output relationship is called a production function...
will be used in fixed (technologically pre-determined) proportions, as there is no substitutability
Substitute good
In economics, one way we classify goods is by examining the relationship of the demand schedules when the price of one good changes. This relationship between demand schedules leads economists to classify goods as either substitutes or complements. Substitute goods are goods which, as a result...
between factors. It was named after Wassily Leontief
Wassily Leontief
Wassily Wassilyovich Leontief , was a Russian-American economist notable for his research on how changes in one economic sector may have an effect on other sectors. Leontief won the Nobel Committee's Nobel Memorial Prize in Economic Sciences in 1973, and three of his doctoral students have also...
and represents a limiting case of the constant elasticity of substitution
Constant Elasticity of Substitution
In economics, Constant elasticity of substitution is a property of some production functions and utility functions.More precisely, it refers to a particular type of aggregator function which combines two or more types of consumption, or two or more types of productive inputs into an aggregate...
production function.
The function is of the form
where q is the quantity of output produced, z1 and z2 are the utilised quantities of input 1 and input 2 respectively, and a and b are technologically determined constants.
Example
Suppose that the intermediate goods "tires" and "steering wheels" are used in the production of automobiles (for simplicity of the example, to the exclusion of anything else). Then in the above formula q refers to the number of automobiles produced, z1 refers to the number of tires used, and z2 refers to the number of steering wheels used. Then the Leontief production function is- Number of cars = Min{¼ times the number of tires, 1 times the number of steering wheels}.