Political decisions on legislation, taxes or agricultural support changes business conditions and results in production and input changes. The relationship between the use of inputs and the result of the production process (i.e. the output) can be described by a production function.

The report describes how agricultural production is expressed mathematically by using a production function and how this production function is used in economic analysis. A literature review and an examination of various methods for estimating production functions is conducted as a basis for further analysis.

The result shows that production functions can be used in many different contexts in agriculture, it is possible for example to examine effects of policy measures, the effects of changes in environmental factors or the effects of technological change. Statistical methods to improve estimates of the function is presented and applied to data on EU countries' agriculture and Swedish farmers.