The functional relationship that exists between physical inputs and physical output of a firm is called production function. In abstract term, it is written in the form of formula:

Q = f (x1, x2,........        , xn)

Q is the maximum quantity of output and x1, x2, xn are quantities of various inputs. The functional relationship between inputs and output is governed by the laws of returns. The laws of returns are categorized into two.

(i) The law of variable proportion seeking to analyze production in the short period.

(ii) The law of returns to scale seeking to analyze production in the long period.