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In economics, a production function relates physical output of a production process to . managerial functions of gathering, allocating and distributing economic General Foundations of Managerial Economics - Economic Approach. The econometric estimation of production functions in this study permits closer examination of the validity of economic policies based on the results of production function analyses, particularly results concerning economies of scale and elasticity of substitution. Given the data available (i.e.. cross-section series), only a static analysis is General Economics: Theory of Production 25 Law of Variable Proportions • It refers to Input-Output relationship, when the Output is Increased by varying the Quantity of one Input. • Law Operates in Short-Run when all the Factors of Production cannot be Increased or Decreased. • Law states that "As we Increase the Quantity of Agricultural Production Economics (Second Edition) is a revised edition of the Textbook Agricultural Production Economics publi shed by Macmillan in 1986 (ISBN -02-328060-3). Although the format and coverage remains similar to the first edition, many small revisions and updates have been made. All graphs have been redrawn using the latest in computer The conventional approach has been to imagine that economy evolves along a path reflecting an underlying trend rate of growth described by model with neoclassical production function. This view assumes that the long-run trend component of GDPis smooth, with short- run fluctuations about trend being primarily determined by demand shocks.