Essence of Production PDF

ESSENCE OF PRODUCTION LESSON 6 (pages 7081  PRODUCTION It is the process of using resources to produce goods and services that can satisfy our needs and wants.  KINDS OF GOODS THAT CAN BE PRODUCED 1. Consumer goods are sold dire...

ESSENCE OF PRODUCTION LESSON 6 (pages 7081  PRODUCTION It is the process of using resources to produce goods and services that can satisfy our needs and wants.  KINDS OF GOODS THAT CAN BE PRODUCED 1. Consumer goods are sold directly to the public. 2. Producer goods are used to produce other goods. FACTORS OF PRODUCTION This refers to anything used to produce goods and services. DEFINE FOUR FACTORS OF PRODUCTION LAND All natural resources used. Ex. : forests, minerals, energy, water, deserts, and fertile fields. CAPITAL Tools and machineries used. Financial Capital is the money spent to buy machinery and other equipment. DEFINE FOUR FACTORS OF PRODUCTION LABOR Works that laborers and workers perform. Ex. : physical/mental talents, abilities, strengths ENTREPRENEUR Captain of the industry Manages and controls the factors of production efficiently CREDITShttps://www.google.com/url?sa=i&url=https%3A%2F%2Fwww.toppr.com%2Fguides%2Fbusiness-economics%2Ftheory-of-production -and-cost%2Ffactors-of-production-land%2F&psig=AOvVaw2IqqMZTBp8PYztoodZVH1S&ust=1694661818252000&source=images&cd=vfe&opi=89978449 &ved=0CBAQjRxqFwoTCOisl6HSpoEDFQAAAAAdAAAAABAE Flow of Payments to the Factors of Production Role of Factors of Production PRODUCTION FUNCTION Refers to the relationship of physical inputs and physical outputs in a business or production.  INPUTS Include all of the factors of production: the land, labor, capital, and entrepreneur. These are what we use to create a product.  TYPES OF INPUTS FIXED INPUT VARIABLE INPUT cannot be immediately can be changed easily changed in the short run. according to the desired volume of production EXAMPLES : Land, building, factories EXAMPLES : Number of workers, machineries, raw materials  OUTPUTS The product that is produced after using these inputs PRODUCTION FUNCTION It describes the relationship between inputs and outputs of production  LAW OF VARIABLE PROPORTIONS states that the final output will only be affected if only one input is varied while others are constant. It assumes a short run period. STAGES OF PRODUCTION stays the same all throughout continuously increasing total number of corn produced how many can one worker produce how much more is produced compared to the previous production. STAGE 1 : Increasing Returns Shows the increase in total production as a variable input increases  STAGE 2 : Decreasing Returns States that the total output increases by adding variable input while other inputs remain constant wherein the marginal productivity of variable input continues to decrease.  STAGE 3 : Negative Returns Adding more and more variable input can cause a reduction in the total product. Producers should be aware of this to avoid waste in resources. The Law of Variable Proportion  Introduction to the Law of Variable Proportion The Law of Variable Proportion explains how production changes with varying input. Also known as the Law of Diminishing Returns. Applies in the short run when at least one factor of production is fixed.  Understanding the Concept When you add more of one input (like labor) to a fixed input (like land), output increases initially. Eventually, the added output from each new input starts to decrease. This is because the fixed input limits how much can be produced.  Example: Agriculture Imagine a farmer with one acre of land. Adding workers or fertilizers increases crop production at first. After a point, more workers lead to overcrowding and less efficient production.  Example: Manufacturing In a small factory with limited machines, hiring more workers boosts production initially. As more workers are added, they may have to wait to use machines. Eventually, too many workers can reduce overall efficiency and output.  Key Takeaways Balance is crucial in production to avoid inefficiencies. Understanding this law helps manage costs effectively. Consider how adding inputs affects your output in any production scenario.  Discussion Questions Can you think of other examples where this law might apply? How would you manage inputs in a production setting to maximize efficiency? Why is it important to understand the Law of Variable Proportion in business? Methods of Production - How we produce goods and services  METHODS OF PRODUCTION 1. MECHANIZATION 2. PRODUCTION LINES Work is done mostly Optimizes the use of a by machines rather conveyor belt, wherein than people. goods being produced are moved through a line of workers who perform their individual tasks on the goods being manufactured.  METHODS OF PRODUCTION 3. DIVISION OF 4. AUTOMATION 5. COMPUTERIZED LABOR Wherein work MACHINE Where workers which was Highly are tasked to do previously done sophisticated certain jobs by people is now computer according to done by controlled their machines. machines are specialization. used to produce goods and services. PRODUCTION COSTS Includes all payments to factors of production. EXAMPLES : rent, wages, interest, and profit Flow of Payments to the Factors of Production  Fixed Cost Sum of all the expenses for the payment of the fixed input. Remains the same in any level of production. EXAMPLE : rent for land and building  Variable Cost These are costs that can be controlled by businessmen. Depends on the level of production. EXAMPLES : electric and water bills, taxes, wages for non-regular, or contractual workers.  TOTAL COST TOTAL COST = TFC  TVC Total expenses in producing goods and services.  COST FOR EVERY PRODUCT Knowing this helps in seing the selling price for a product or service. AVERAGE FIXED COST (AFC) AFC = Total Fixed Cost / Total Product AVERAGE VARIABLE COST (AVC) AVC = Total Variable Cost / Total Product AVERAGE TOTAL COST (ATC) ATC = Total Cost / Total Product MARGINAL COST MARGINAL COST = Change in total cost / Change in quantity  MISCELLANEOUS COSTS : EXPLICIT COST IMPLICIT COST OPPORTUNITY COST Payments made Payment It is giving up to others as a received by the something for the cost of owner of the alternative. It is operating the business. This is computed to business. computed to determine the status know the exact of the present income of the business, whether it is business. making profit or not.  P_OD_C_ _ _ N Process of creating goods and services to satisfy needs and wants  PRODUCTION Process of creating goods and services to satisfy needs and wants  L_ N _ Factor of production that includes all natural resources used.  LAND Factor of production that includes all natural resources used. E_T_E__E_E_R Captain of the industry.  ENTREPRENEUR Captain of the industry.  _A_O_ Factor of production that consists of human abilities and skills.  LABOR Factor of production that consists of human abilities and skills. Give your own meaning of production. Why is it important to know production costs?  TYPES OF INDUSTRIES  Small-scale Industries Usually based at home. Produces homemade products. Uses simple machines and equipment. Includes any business activity engaged in industry, agribusiness or services.  MEDIUM-SCALE INDUSTRIES Produces furniture, jewelry, clothing, and other consumer durables. Increased number of workers from 100 to 200. Capital is much bigger than small-scale industries. LARGE-SCALE INDUSTRIES Uses heavy equipment and machineries. Employs many workers Invests more capital Produces cement, medicines, oil products, and other electronic durables. BUSINESS ORGANIZATIONS - institutions that produce and sell goods or services so that they can earn a profit. - Classified according to ownership.  BUSINESS ORGANIZATIONS Sole Partnership Corporation Cooperative Proprietorship  Sole Proprietorship One sole person who owns and manages the business. There is limited production of goods. There is also limited resources and capital. Examples : freelancers and self-employed professionals.  Partnership A partnership between two or more individuals who put their money and properties together to run a business. Many ideas and abilities are applied in the running of this business. Example : Apple (founded by Steve Jobs and Steve Wozniak)  KINDS OF PARTNERSHIP Limited Partnership : wherein the responsibility of a partner is limited. General partnership : Both partners are equally involved with the business.  Corporation Ownership of the business is in the hands of many individuals known as stockholders. Each stockholder owns a portion of the company. The stockholders elect a board of directors, who set policies that the business has to follow. The corporation hires experts to manage the business.  KINDS OF CORPORATION Open Corporation : open to all aspiring stockholders who are willing to buy a share of the company. Closed Corporation : Members are selected people only.  Corporations expand their business through : Mergers : joining together two or more business enterprises into one and Conglomerates : a very large company that consists of several smaller companies  Cooperative An organization in which the members own the stocks of the cooperative. The main goal is to serve its members rather than to gain profit. A chairman is chosen to manage the day to day affairs of the company.  The dierence between corporation and cooperative is that a corporation is a legal entity that is separate from its owners. A cooperative, however, is an association of individuals who cooperate for the promotion of mutual, social, cultural, and economic benefits.  It is an organization whose objective is to serve its members and not to gain profit. COOPERATIVE It is an organization where only one person manages the business.  SOLE PROPRIETORSHIP It is an organization that is owned by stockholders. CORPORATION It is an organization where two or more individuals put up a business together. PARTNERSHIP More stocks means more votes in this organization. CORPORATION  For you, among the 4 industries (small-scale, medium-scale, and large-scale) which do you think is most needed by our economy? Why? THANK YOU! Essence of Production Credits: This presentation template was created by Slidesgo, and includes icons by Flaticon, and infographics & images by Freepik.