Definition
According to Bates and Parkinson (n.d),
production is the organized activity of
transforming resources into finished products in
the form of goods and services; the objective of
production is to satisfy the demand for such
transformed resources.Production in ordinary sense, it means creation of a commodity for the satisfaction of human wants. For instance, a carpenter may shape the wood into a more useful things like a chair or cabinet. Hence, he created additional utility or satisfaction.
Types of Production
Primary Production – refers to extractive industries such as mining and oil extraction. In advanced countries, the primary sector is providing less employment because it uses capital intensive, which means machinery is replacing manpower.
Secondary Production refers to the conversion of raw materials into finished products. For instance, manufacturing motor cars, shirts, and medicine.
Tertiary Production – these are the services that enable the finished goods to be in the hands of the consumers. Examples, distributive traders, banking, and government services.
Primary Production – refers to extractive industries such as mining and oil extraction. In advanced countries, the primary sector is providing less employment because it uses capital intensive, which means machinery is replacing manpower.
Secondary Production refers to the conversion of raw materials into finished products. For instance, manufacturing motor cars, shirts, and medicine.
Tertiary Production – these are the services that enable the finished goods to be in the hands of the consumers. Examples, distributive traders, banking, and government services.
Factors of Production
Land is the original gift of nature. It refers to a country's natural resources. It includes, what lies under the land like coal and gold, what is over the land like air, and what is around the land seas and oceans.
Labor is the exertion of physical and mental efforts by an individual. It is owned by individuals who sell it to firms in exchange for wages or salaries. It requires training and education to be more productive. The division of labor is based on the different levels of skills, education, and strength.
Capital is a finished product that is used to produce other goods.
Entrepreneur is the organizer and coordinator of land labor and capital. Many of the economists agreed that entrepreneurs are part of factor labor. However, in modern economies, large businesses are seldom owned by one person, like in a corporation.
Land is the original gift of nature. It refers to a country's natural resources. It includes, what lies under the land like coal and gold, what is over the land like air, and what is around the land seas and oceans.
Labor is the exertion of physical and mental efforts by an individual. It is owned by individuals who sell it to firms in exchange for wages or salaries. It requires training and education to be more productive. The division of labor is based on the different levels of skills, education, and strength.
Capital is a finished product that is used to produce other goods.
Entrepreneur is the organizer and coordinator of land labor and capital. Many of the economists agreed that entrepreneurs are part of factor labor. However, in modern economies, large businesses are seldom owned by one person, like in a corporation.
Theory of Production
The factors of production are known as the inputs of production. Output is the result that has been created by the inputs of labor and capital combined.
There are two types of output; goods and services. The quality and quantity of labor and capital and all other inputs have a direct impact on the quality and quantity of output. The technology is essential to the firm, it is the process by which inputs are turned into outputs.
The factors of production are classified into: fixed factors and variable factors. The fixed factor remains constant regardless of the volume of production, while the variable factor changes in accordance with the volume of production.
The factors of production are known as the inputs of production. Output is the result that has been created by the inputs of labor and capital combined.
There are two types of output; goods and services. The quality and quantity of labor and capital and all other inputs have a direct impact on the quality and quantity of output. The technology is essential to the firm, it is the process by which inputs are turned into outputs.
The factors of production are classified into: fixed factors and variable factors. The fixed factor remains constant regardless of the volume of production, while the variable factor changes in accordance with the volume of production.
Production Function
According to Fajardo (1990) it is the technical relationship between the application of inputs (factors of production and resulting maximum obtainable output). It is a mathematical function that relates the maximum amount of output that can be obtained from a given number of inputs, generally capital and labor (Lumencandela, n.d)
According to Fajardo (1990) it is the technical relationship between the application of inputs (factors of production and resulting maximum obtainable output). It is a mathematical function that relates the maximum amount of output that can be obtained from a given number of inputs, generally capital and labor (Lumencandela, n.d)
Short-Run and Long-Run
The difference is not based on time but on the production inputs. In the short-run, the use of at least one factor of production cannot be changed, or there are fixed inputs. It is a period of time that is too short to allow an enterprise to change its plant capacity, yet long enough to allow a change in its variable resources. In the Long-run, it is a period of time that is long enough to permit a firm or enterprise to alter all its resources or inputs (both fixed and variable factors) For example, a laundry business can be adjusted in a month or two. However, Toyota Motor Corporation capital adjustment could take several years.
The difference is not based on time but on the production inputs. In the short-run, the use of at least one factor of production cannot be changed, or there are fixed inputs. It is a period of time that is too short to allow an enterprise to change its plant capacity, yet long enough to allow a change in its variable resources. In the Long-run, it is a period of time that is long enough to permit a firm or enterprise to alter all its resources or inputs (both fixed and variable factors) For example, a laundry business can be adjusted in a month or two. However, Toyota Motor Corporation capital adjustment could take several years.
The Law of Diminishing Marginal Returns
The law states that when successive units of a variable input (like farmers) work a fixed input (like one hectare of land), beyond a certain point the additional product (output) produced by each additional unit of a variable input decreases (Fajardo,1990).
The law states that when successive units of a variable input (like farmers) work a fixed input (like one hectare of land), beyond a certain point the additional product (output) produced by each additional unit of a variable input decreases (Fajardo,1990).
Production with Two Variable Inputs
When more than one input level is free to be altered, a firm faces the question of what is the best input combination to use.
According to Bajarcharja (2018), An isocost line is a graphical representation of various combinations of two factors (labor and capital) which the firm can afford or purchase with a given amount of money or total outlay. It is an important tool for determining what combination of factor-inputs the firm will choose for production process.
Example, producer has P200 and he wants to spend his entire outlay on two factors – labor and capital. Further suppose that the price of Labor is P 4 per unit and the price of capital is P 5 per unit. If the firm spends its whole outlay of P 200 on labor only, he can buy 50 units of labor. And, if the firm spends its entire outlay on capital only, then he can buy 40 units of capital.
An isocost line may shift due to the following reasons:
(1) Change in total outlay to be made by the firm
(2) Change in price of a factor-input
Ponnusamy (2016) An isoquant is a firm’s counterpart of the consumer’s indifference curve. An isoquant is a curve that shows all the combinations of inputs that yield the same level of output. ‘Iso’ means equal and ‘quant’ means quantity. Therefore, an isoquant represents a constant quantity of output. The isoquant curve is also known as an “Equal Product Curve” or “Production Indifference Curve” or Iso-Product Curve
When more than one input level is free to be altered, a firm faces the question of what is the best input combination to use.
According to Bajarcharja (2018), An isocost line is a graphical representation of various combinations of two factors (labor and capital) which the firm can afford or purchase with a given amount of money or total outlay. It is an important tool for determining what combination of factor-inputs the firm will choose for production process.
Example, producer has P200 and he wants to spend his entire outlay on two factors – labor and capital. Further suppose that the price of Labor is P 4 per unit and the price of capital is P 5 per unit. If the firm spends its whole outlay of P 200 on labor only, he can buy 50 units of labor. And, if the firm spends its entire outlay on capital only, then he can buy 40 units of capital.
An isocost line may shift due to the following reasons:
(1) Change in total outlay to be made by the firm
(2) Change in price of a factor-input
Ponnusamy (2016) An isoquant is a firm’s counterpart of the consumer’s indifference curve. An isoquant is a curve that shows all the combinations of inputs that yield the same level of output. ‘Iso’ means equal and ‘quant’ means quantity. Therefore, an isoquant represents a constant quantity of output. The isoquant curve is also known as an “Equal Product Curve” or “Production Indifference Curve” or Iso-Product Curve
Marginal Rate of Technical Substitution
Marginal Rate of Technical substitution (MRTS), is the amount of capita that a producer is willing to give in exchange for labor and still lie on the same isoquant (Gabay B.,Remotin R., & Uy E., (2007, p 127). We can say that MRTS is the slope of isoquant. That is:
Marginal Rate of Technical substitution (MRTS), is the amount of capita that a producer is willing to give in exchange for labor and still lie on the same isoquant (Gabay B.,Remotin R., & Uy E., (2007, p 127). We can say that MRTS is the slope of isoquant. That is:
MRTS is also equal to the ratio of the marginal product of labor to the marginal product of capital, or
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Tags:
Concept of Production
Factors of Production
Production
Theory of Production
Types of Production