Chapter 4: Production Aspect/Technical Aspect PDF
Document Details
Tags
Summary
This document covers the production aspect, technical aspect, and factors of production. It details the process of creating goods and services and explains the essential components like land, labor, capital, and entrepreneurial ability. It also discusses production costs, total costs, fixed costs, and variable costs. It also explains different types of inventories.
Full Transcript
**CHAPTER 4: PRODUCTION ASPECT / TECHNICAL ASPECT** **PRODUCTION** -- it is the creation of goods and services. \- it is the creation of utility, which means satisfaction. \- the process of converting resources into goods and services. **Factors of Production:** 1. *Land* -- includes natural r...
**CHAPTER 4: PRODUCTION ASPECT / TECHNICAL ASPECT** **PRODUCTION** -- it is the creation of goods and services. \- it is the creation of utility, which means satisfaction. \- the process of converting resources into goods and services. **Factors of Production:** 1. *Land* -- includes natural resources such as forests, mountains, and bodies of water like rivers, lakes and seas. 2. *Labor* -- refers to both physical and mental efforts like the works of the farmers, fishermen, workers, clerks, lawyers, teachers, doctors, etc. 3. *Capital* -- pertains to machines, equipment, buildings, and other physical resources which are used in the production of goods and services. (economic concept) 4. *Entrepreneurial Ability* -- coordinates the factors of production such as land, labor and capital. Without such ability, the other productive resources tend to be inefficient. **INPUT-OUTPUT RELATIONSHIP** **INPUTS OUTPUTS** -money - shoes -machines - bags -materials - books -manpower - rice -management - houses -information - cars **Cost of Production** -- represent the payments for the factors production. This affect the ability and willingness of entrepreneurs to produce. \*\* When production costs are high, prices go up. This decreases the purchasing power of the consumer. This results to lower quantity demanded for goods and services. There will be a decrease in sales which is not favorable to producers or sellers. **TOTAL COSTS OF PRODUCTION** -- is the sum total of expenses in producing a product or service. It is also equivalent to the sum of fixed cost and variable cost. **Fixed Costs** -- remains constant regardless of the volume of production. Ex. Rental Expense **Variable** **Costs** -- the cost changes in proportion to the volume of production. \* Total cost divided by the number of goods purchased equals average cost or unit cost.\* **Rules of Production (Long-Run Period)** **TR = Total Revenue (income)** **TC = Total Cost (expense)** When TR is greater than TC, produce more. When TR is less than TC, stop producing. When TR is equal to TC, maintain production. **Rules of Production (Short-Run Period)** When TR is greater than VC, operate. When TR is less than VC, shut down. **Factors essential in the production process: Criteria for selecting good suppliers:** 1. Quality needed 1. Price 2. Quantity demanded 2. Quality 3. Availability of supply 3. Reliability 4. Production requirements 4. Delivery / Speed **Inventories** -- are stocks of goods and materials. **Three types of inventories:** 1. *Raw-materials inventory.* These are stockpiles of materials for inputs of production. 2. *Work-in-process inventory.* These are partially completed products that require further processing. 3. *Finished-goods inventory.* These are completed goods for delivery to customers. **Scheduling** -- is the process of ensuring the delivery of materials at the right place and right time. **Quality Control** -- is a process of insuring that goods and services are produced in accordance with their designs and specifications.
