You must have come across several notions and uses of production in different fields. But do you know that this term has different significance across a number of subjects? In the same stream, production could be defined in numerous ways in the field of management and economics.
The term production is derived from the mediaeval Latin and the old French word that means "a come into being". Several other meanings are "a prolonging" or "lengthening". Production is related to the noun of action from the past participle stem of the Latin term that is "bring forth".
According to Karl Marx, "for the various individuals, the production mode is a defined form of expression of their lives and a defined mode of life on their part." Individuals have agreed on both what they will produce and how they will produce it.
Production is the process of combining multiple material inputs with immaterial inputs (plans, knowledge) to create something in the form of an output. The activities of manufacturing for the output, which includes services and goods that impart some value and contribute towards the basic utilities of individuals.
The most widely known example of production in economics is the manufacturing of cars. The production process could be defined by explaining the activities that have been carried out for the manufacturing of the car. The assembling of the various parts and components for the manufacturing of the car could be defined as the process of production. For example, the joining and assembling of the rubber tyres with the metal bodies for making comfortable seats is the production process.
In economics, the equation of production is a simple representation of the relationships between inputs and outputs in a business. It shows how the number of inputs affects output, or how much each input creates. The production formula represents the relationship between the amount of budget money, time, and effort that a person invests in an action that creates output. It shows how much profit (or loss) will be earned if a firm chooses not to invest any more money or time. The formula can also be used to calculate the potential profit if effort is increased or reduced by a single factor.
For example, one set of inputs might include 20 workers and an assembly line. This means that at any given time, output will equal 40 widgets (a product) times 20 workers. A different combination of inputs might be 10 manufacturers, who each supply 10 widgets per day to an assembly line with 1 worker per hour: 40 widgets multiplied by 10 products, 1 worker per hour equals 400 widget-hours per day.
In economics, there is a specific production theory that expresses the concept in a certain way. Production theory describes the fundamental principles that will guide the entrepreneur in determining how much of each good or commodity should be sold. Furthermore, by following these principles, the entrepreneurs learn how much raw material and finished goods are required. The entrepreneur, after following these principles, will get to know how much fixed capital and labour need to be employed and how much must be utilized in the business activities.
Three main assumptions define the overall production theory in economics. The three assumptions of the production theory are:
1) The manager of the production ensures the produce to maximize profits.
2) During the production process, output can be increased by increasing the input, which would eventually result in increase of profits
The various categories of production in economics are labour, land, capital, and entrepreneurship. Now, let's describe all these factors of production in a simpler way:
To complete the production, there are different stages that an entrepreneur has to follow:
Stage 1 - This is the growth stage in which the various companies grow in the market.
Stage 2 - This is the second stage where the marginal profit of the companies starts to decline.
Stage 3 - This is the third stage in which the marginal return of the companies starts coming to zero overall.
In economics, there are two main types of production: direct and indirect production. The type of production in economics relates to the production of goods and services. Let's go through these two types of products in detail:
Direct Production: Direct production is completely related to the manufacturing of different goods and services by an individual for personal and commercial use. Direct production occurs on a small scale and sometimes not for sale or immediate consumption.
Indirect Production: Indirect production refers to all the activities involved in the production of goods and services. Indirect production generally occurs on a larger scale. There are three types of indirect production. These three main types have been referred to as the "modes of production." The three main types of indirect production are primary, secondary, and tertiary production.
After going through the blog, you must have got an understanding of the concept of production in economics. However, whenever students solve assignments on production theory, they often don’t get clarity on how to write their answers. This is obvious because there are different aspects of the concept that require reading and extensive understanding. For example, macroeconomic assignments will have different applications of the production concept and microeconomic assignments will have different applications.
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