Fisheries Economics

3.2.1. Production function

Production function is one of basic and important concepts in economics. It is the basis for resource economics studies. In the early past it was considered that production function is a characteristic feature of those production processes in which nature dominated. Later it was established that production function explained the functional relationship between inputs to produce an output in all production processes. The inputs used are goods and services which are scarce and having alternative uses.

Marshall (1966) explained the production function analysis in agriculture with the help of Law of Diminishing Returns. According to him, “an increase in the capital and labour applied in the cultivation of land causes in general a less than proportionate increase in the amount of produce raised, unless it happens to coincide with an improvement in the arts of agriculture”.

Marshall assumed that land is a fixed factor and other factors were variable, all units of the variable factor were identical and homogenous and the technology of agriculture followed remained the same.

All the above said assumptions apply in fisheries, for example aquaculture, as well. The land is fixed. The other factors of production like labour, capital and inputs do vary. The technology adopted does not significantly change in the short run. If an improved production technology is followed then the returns increase instead of diminishing, but eventually a stage will be reached in which diminishing returns would appear.

Every producer would need to know in which stage of production he has been operating so that he could produce the maximum possible output with a given set of inputs and technology. Production function analysis helps us to identify the inputs which influence the production process and the efficiency with which these inputs were used. Also, we could identify those inputs which could cause increase in the output more than per unit of each input so that they could be used in higher quantities. Similarly, the level of use of inputs which contributed less to the production could be reduced to required levels. Thus, the cost of production could be minimised which means enhanced income. Since fisheries is an economic activity, every fishermen or fish farmer engaged in fish production is assumed to attempt at maximising income in the pursuit of producing fish.

The objective of the producer, that is, whether he intends to maximize yield or income or profit or minimise cost influences the choice of production function analysis. For example, if profit optimisation is preferred, then other information like prices, consumer demand, inflation, etc. would also be required for the analysis. That would make the analysis a bit complicated also. However, it must be remembered that although a producer does not decide the production function characterising the production process he has been following, he can choose an appropriate alternative function. Thus, he can benefit from production function analysis to make required decisions.