The Production Frontier Modeling Production in Computerized Business Simulations

Abstract

This paper presents a system of equations that can be used for modeling the production function in computerized business simulations. A review of a sample of contemporary business games demonstrates that most designers have production algorithms that are incomplete or inconsistent with the theory of production. The production system presented in the paper uses a continuous multiplicative functional form which is flexible and allows the designer to specify and control for: diminishing returns, points of inflection, output elasticities, and returns to scale. The complete production system consists of fifteen equations in which the first nine define the production frontier (i.e., outside boundary) and six optional functions allow the designer to incorporate input inefficiencies and/or improvements into the model. A numerical example demonstrates use of the frontier.