Copyright © CC-BY-NC 2019, CRIBFB | IJBMF International Journal of Business and Management Future; Vol. 3, No. 1; 2019 Research Paper ISSN 2575-7911 E-ISSN 2575-792X Published by Centre for Research on Islamic Banking & Finance and Business, USA 38 Operational and Efficient Production Functions: Measuring Efficiency in Abyek Cement Factory Bijan Bidabad 1 Mahshid Sherafati 2 Roohollah Mohammadi 3 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. Keywords: Production function, Cost function, Cement, Efficiency, Inefficiency measurement JEL: D22, L11, L61 1. Introduction Economically, the “Firm Theory” is grounded on the analytical fundamentals of microeconomics. 4 A firm is defined as a technical unit that produces goods using production factors. The firm production function is the mathematical expression of the relationship between production factors and the product(s). Production factor can be any goods or services that are used in the process of production of new products; and can be the products of other firms. Production factors are classified within a specified period as constant and variable factors. Constant production factor is essential for production, but its amount remains unchanged according to the generated amount of the product. Constant production costs are imposed on firm and are not affected by short-term optimization decisions. In other words, whether the firm produces or not, the constant production factor in the specified period is not altered. This specified period that is expressed as a short time period here is the basis for defining the constant production factor. This means that if we consider this period as a very long period, then the constant production factor can be considered as a variable factor because the firm will be able to alter the application of this factor in the production process. Variable production factor is a factor that changes by changing the amount of production. For instance, in a cement factory, accumulated capital of the installments is considered as a constant production factor during a short period; however, gypsum, limestone, iron ore, and other similar production factors are defined as variable production factors that are in direct relationship with the production of clinker and cement. The firm manager's decisions are in line with the facts that to what extent the production factors to be bought in order to maximize profits (and minimize costs of the firm) from selling the produced products. 1 (B.A., M.Sc., Ph.D., Post-Doc.) Professor of Economics and economic advisor to.Fars & Khuzestan Cement Company (FKCCo). Site: http://www.bidabad.com, Email: bijan@bidabad.com, This paper is a summary of some parts of the research project: "Studying the economic structure of Abyek Cement Factory”, Far s & Khuzestan Cement Company (FKCCo), Bijan Bidabad. (Revised) Presented at International Conference on Business Strategy and Social Sciences (ICBSSS), Asian Economic and Social Society (AESS), Faculty of Technology Management and Business, Universiti Tun Hussein Onn Malaysia, and Pak Publishing Group. 16-17 August 2014, Kuala Lumpur, Malaysia. 2 MBA Department. Management Faculty, Multimedia University, Malaysia. mahshidsherafati@gmail.com 3 CEO of Novin Pajoohane Research Institute, Tehran, Iran. rmohamadi58@gmail.com 5 For more information, see microeconomics textbooks, particularly Henderson and Quandt (1982).