Leontief Production Function
The Leontief production function is a formulation of the production function.
Contents
Formulation
For two factors K and L, the production function is specified as:
Q = Min{K,L}
Consider the following graph, where isoquants are drawn in red, purple, and blue; and where the points of optimal production are connected by the black line.
This function has several useful characteristics:
the limiting factor determines production level (Q)
- in most applications of this function, there is an assumption about the limiting factor, reducing a problem to be univariate
- conversely, the unlimited factor has 0 marginal product
- constant returns
Production does not necessarily have to be 1:1. Consider a car factory, with factors of tires and engines. A single car requires 4 tires to every 1 engine, so the function would be described as Q = Min{4 tires, 1 engine}.