TECHNOLOGICAL CHANGE EFFECT ON PRODUCTION FUNCTION
Technological change has been defined broadly as “the process
by which economies change over time in respect of the products and services
they produce and the processes used to produce them" and more specifically
as alteration in physical processes, materials, machinery or equipment, which
has impact on the way work is performed or on the efficiency or effectiveness
of the enterprise. Technological change may involve a change in the output, raw
materials, work organisation or management techniques but in all cases it would
affect the relationship between labour, capital and other factors of
production.
PRODUCTION FUNCTIONS AND TECHNOLOGICAL
CHANGE
'A production function attempts to specify the output of a
production process (as a function of the various factors of production e.g.,
labour, capital, technology, management or organisation and land). It may be possible
to explicitly state the nature of this function based on econometric studies
but that is not our interest at present. We would like to understand the role
of technology in the production process and for that purpose we would like to
begin with the isoquant approach. An isoquant specifies a range of alternative
combinations of two factors of production, say labour and capital, which can be
used to produce a given quantity of the output and is based on the
assumption that the other factors of production e.g. the state of knowledge of
technology is constant.
Figure 1 : Isoquants and factor substitution
