Concepts of Production

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Introduction

Production is the process of converting inputs into outputs. The initial factors of production results in final goods in the process of production. Production is a very important concept in economics because it is the running force. Without production, economics cannot be complete as economics starts with the production function and derives the other factors from it.

Meaning of Production: What is the concept of production?

Any human initiative that creates a good for use can be called production. It requires four factors as inputs, namely, land, labor, entrepreneurship, and capital to complete the initial phase of production. The end product or goods are known as outputs in economics.

Production can result in output in the form of goods and services. Goods are products we can view and touch with our hands such as mobiles, shirts, rice, utensils, etc. while we cannot see services but can feel their use or presence. Teaching, medical services, transportation, etc., are forms of various services.

Three Types of Production Processes

Production processes can be classified into three types, which are the following:

Primary Production

Primary production processes tap or harness natural resources. It is related to obtaining natural resources in the form of raw materials.

Examples of primary production include cultivation, mining, fishing, etc.

Secondary Production

This type of production converts primary resources, such as raw materials into finished goods.

Examples include the production of railroads, houses, automobiles, shirts, and furniture. In this type of production, the raw material goes through extraction and manufacturing.

Tertiary Production

This type of production concept is related to the services.

Examples of tertiary production include servicemen like teachers, doctors, soldiers, police, hairdressers, etc.

The production concept refers to the production of goods at a mass scale so that the producers can create demand for their products in the markets. This concept was pretty applicable in the twentieth century.

However, in the twenty-first century, most companies have robust production and distribution channels and therefore companies cannot beat their competitors depending on the concept of production alone.

Examples of the Concept of Production

  • A solid example of the concept of production is the outsourcing of services from one company to another for the reason that the outsourcing company can save enough by letting the other company do the task more efficiently.

    For example, Apple produces most of its phones in Asia but sells them all over the world. Here, manufacturing is outsourced to China and it is a glaring example of the concept of production.

  • Another similar example is the outsourcing of ITES projects of renowned US companies to India. By harnessing the knowledge and power of Indian employees at a fraction of the cost, US-based companies are earning huge profits. It is also an example of the concept of production.

  • If we look back to history, there are many examples of the concept of production. One such example was related to the Ford Motor Company. The Ford Motor Company started producing cars at economies of scale at the beginning of the twentieth century believing that the more it produces, the more people will buy the cars.

    This idea was true. At the beginning of the twentieth century, there was so much demand for cars and so little availability that Ford Motor Company became one of the most successful automobile companies in history. Believing in the concept of production brought high dividends to Ford Motor Car Company.

Types of Basic Production Systems

There are mainly three types of production systems which are the following:

The Batch System: In the batch system general equipment and methods are used to produce a small batch of products. Production in the batch system varies greatly from one batch to another. The batches of products move from one stage to the other and a simultaneous group of end products is obtained at the end of production.

Examples include chemicals and processed foods.

The Continuous system: Items in continuous production go through a series of steps. Specially designed equipment and methods are used to lower the production cost in this system. The tasks are completed by employees who are specially trained to do the tasks.

Examples include automobiles and consumer products like TV and washing machines.

The Project System: In the project system one single product is produced via the use of technology at a project level. Often, this type of production is taken up only once. The method of working in a project-type system is very unique and systematic.

Examples include the production of ships and prototypes of space shuttles.

Production Possibility Frontier (PFF)

The production possibilities frontier refers to the curve that shows the possible production quantity of two products when their production depends upon the same finite resources.

In economic terms, PPF is used to find the critical point at which a nation’s economy reaches the greatest level of efficiency when it chooses to produce the item that it is most qualified for and trades for all other items.

In macroeconomic terms, PPF are a set of points on the production graph at which a nation is most efficiently allocating its resources to produce more of some goods at the expense of (or less of) other goods. When the economy is producing goods lower than PPF levels, there is a chance for the economy to produce more of some goods without having to lessen the production of other goods.

The PPF illustrates that there are limits to the production of each good. Therefore, the economies must decide which products to produce more to reach the maximum resource allocation efficiency.

Opportunity Cost

As mentioned above, economies must decide the products it is best qualified for and let other productions go off. Opportunity cost is the cost of production that an economy lets forego as it takes up another good’s production. In other words, when an economy does not produce some goods, the cost of production of those goods is known as opportunity cost.

Opportunity cost is an important idea to consider because without considering the opportunity cost, economies cannot decide which products or services to produce to get the maximum value out of the production process. If the opportunity cost is more than the value of the production of produced goods, the economy must check whether the items it is producing are offering more value than some other items. Therefore, opportunity cost offers a way to compare between goods and services of which an economy is engaged in production.

Conclusion

Concepts of production are a very important topic in economics. It is used to identify the best goods and services an economy is best qualified for. The use of concepts of production are many and they can be found in marketing, business analysis, and other domains of studies. By understanding the concepts of production, companies and economies can create value and offer the best products to consumers using their own resources and maximizing output.

FAQs

Q1. What is the best advantage of the production concept?

Ans. The best advantage of the production concept is that it lets the producer produce more of an item using the least resources.

Q2. What is the benefit of the production concept for consumers?

Ans. The benefit of the production concept for consumers is that they can find the products anywhere and in an affordable way.

Q3. What is the most important disadvantage of the production concept?

Ans. The most important disadvantage of the production concept is that when companies stick to the production concept, they may lose focus on what the consumer need and want.

raja
Updated on 13-Oct-2022 11:19:47

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