The technology tells us how much output can be produced from the amount of labour and capital used in production. A simple way to describe the technology is in terms of a production function, which shows how much output can be made from given amounts of labor and capital. The production function can be represented using symbols as follows :
Y = F ( N , K )
This is simply shorthand notation for saying that the output Y that is produced in the economy depends on employment N and capital K. ( reading out loud we say : “ Y is a function F of N and K. “ ). The notation F with parentheses after it means a general function of the vvariables listed in parentheses. With such a notation we are not specific about what the function actually looks like, whether it is linear or the square root of N, or whatever.
The production function relates output to employment and capital whatever their levels, even if employment is below potential. It would tell us how much real GNP would be produced, for exemple, if there were a very severe depression and only half the normal number of people were at work
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