Operational and Efficient Production Functions: Measuring Efficiency in Abyek Cement Factory

Bijan Bidabad; Mahshid Sherafati; Roohollah Mohammadi

doi:10.46281/ijbmf.v3i1.302

Bijan Bidabad Professor, Economics and Chief Islamic Banking Advisor, Bank Melli, Iran
Mahshid Sherafati MBA Department. Management Faculty, Multimedia University, Malaysia
Roohollah Mohammadi CEO of Novin Pajoohane Research Institute, Tehran, Iran

DOI: https://doi.org/10.46281/ijbmf.v3i1.302

Keywords: Production function, Cost function, Cement, Efficiency, Inefficiency measurement

Abstract

In this paper, Leontief linear production functions with one product, and one activity are used to derive the production function of Abyek Cement Factory. The mathematical closed form of production function and also, profit, cost, and demand functions for production factors are obtained for the cited factory.

We tried to calculate Operational Production Function of Abyek Cement Factory. It was realized that Leontief linear production function is applicable, and its mathematical form can properly express the economic structure of production in a cement factory.

The efficient production function for this factory is also derived in this research. This function exhibits the costs incurred due to the inefficient production of the factory during different years. According to the findings, it was concluded that if the Abyek Cement Factory produces efficiently through employing optimal amounts of factors of production, it can reduce costs by 21 to 52 percent without any change in production level. Calculations were done for both short-term and long-term periods.

JEL: D22, L11, L61

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