"Production is the process of combining various inputs, both material and immaterial, in order to create output. Ideally, this output will be a good or service which has value and contributes to the utility of individuals."
The study of how firms produce goods and services, including factors of production, technology, and economies of scale. Also examines how costs vary with output and how firms make production decisions.
Production Function: A mathematical equation that shows the relationship between inputs and outputs in production, i.e. how much output is produced from specific combinations of labor, capital, and raw materials.
Marginal Product: The additional amount of output produced by using one additional unit of input, all other factors held constant.
Law of Diminishing Returns: As additional units of one input are added to a fixed amount of other inputs, the marginal product of the variable input eventually declines.
Total Cost: The sum of fixed and variable costs, i.e. all costs associated with producing a certain level of output.
Fixed Costs: Costs that do not vary with the level of output, such as rent or property taxes.
Variable Costs: Costs that vary with the level of output, such as labor costs or raw materials.
Marginal Cost: The additional cost of producing one additional unit of output, all other factors held constant.
Average Variable Cost: The variable cost per unit of output.
Average Total Cost: Total cost per unit of output.
Economies of Scale: When a firm experiences lower average total costs as it produces more output, due to spreading fixed costs over a larger output.
Diseconomies of Scale: When a firm experiences higher average total costs as it produces more output, due to the difficulty of managing larger production quantities and bureaucratic inefficiencies.
Short-run vs. Long-run Costs: Short-run costs are those that can be changed only gradually, while long-run costs are those that can be changed completely.
Production Efficiency: When a firm produces the maximum possible amount of output from a given set of inputs, i.e. it attains the point of minimum cost given current technology and input prices.
Production Possibility Frontier: A graphical representation of the possible combinations of two goods or services that can be produced, given a fixed set of resources and technology.
Total Revenue: The amount of money the firm receives from selling its output.
Marginal Revenue: The additional revenue earned by selling one additional unit of output.
Profit: The difference between total revenue and total cost.
Break-even Point: The level of output at which total revenue equals total cost, i.e. the point at which the firm earns zero profit.
Productive Efficiency: When a firm is producing at the lowest possible cost and price, given current technology and input prices.
Allocative Efficiency: When a firm produces the goods and services most valued by society at the lowest possible cost, which occurs when price equals marginal cost.
Fixed Cost: These are the costs that do not change with the level of production, such as rent, insurance, equipment depreciation, salaried employees, etc.
Variable Cost: These are the costs that increase or decrease in proportion to the level of production, such as labor, raw materials, utilities, packaging, etc.
Total Cost: The sum of fixed and variable costs required to produce a given level of output.
Average Cost: The total cost divided by the quantity produced.
Marginal Cost: The additional cost of producing one more unit of output.
Explicit Cost: The direct cost of producing a product, such as labor, raw materials, rents, etc.
Implicit Cost: The indirect cost of producing a product, such as the opportunity cost of using a resource for one purpose over another.
Short-Run Cost: The costs incurred by the producer in the short run, where at least one input is fixed.
Long-Run Cost: All costs incurred in the long run where all inputs are variable.
Economies of Scale: When a firm experiences a decrease in average costs as production increases.
Diseconomies of Scale: When a firm experiences an increase in average costs as production increases.
Average Fixed Costs: Fixed cost divided by the quantity produced.
Average Variable Costs: Variable cost divided by the quantity produced.
Total Revenue: The total amount of money a firm receives from selling its products or services.
Marginal Revenue: The additional revenue received from selling one more unit of output.
Break-Even Point: The level of production where total revenue equals total cost.
Operating Costs: All costs incurred in the production process on a regular basis.
Sunk Costs: Costs that have already been incurred and cannot be recovered.
Replacement Costs: The cost of replacing an asset when it wears out or becomes obsolete.
Shutdown Costs: The cost a firm incurs when ceasing production.
"The area of economics that focuses on production is called production theory."
"Land, labour, and capital are deemed the three fundamental factors of production."
"Under classical economics, materials and energy are categorized as secondary factors as they are byproducts of land, labour, and capital."
"Primary factors encompass all of the resourcing involved, such as land, which includes the natural resources above and below the soil."
"In addition to the common factors of production, entrepreneurship and technology are sometimes considered evolved factors in production."
"The production function assesses the relationship between the inputs and the quantity of output."
"Economic welfare is created in a production process, meaning all economic activities that aim to satisfy human wants and needs. The degree to which the needs are satisfied is often accepted as a measure of economic welfare."
"The first is improving quality-price-ratio of goods and services and increasing incomes from growing and more efficient market production, and the second is total production which helps in increasing GDP."
"The three most important forms of production are market production, public production, and household production."
"The satisfaction of needs originates from the use of the commodities which are produced."
"The quality-price-ratio of commodities improves when more satisfaction is achieved at less cost."
"Market production has a double role: creating well-being and producing goods and services and income creation."
"Market production is the only production form that creates and distributes incomes to stakeholders."
"Public production and household production are financed by the incomes generated in market production."
"Market production contributes to economic well-being by creating goods, services, and income gains."
"Improving product competitiveness often means lower prices and to the producer lower producer income, to be compensated with higher sales volume."
"Market production is the 'primus motor' of economic well-being."
"Economic well-being also increases due to income gains from increasing production."
"Market production aims to create well-being and produce goods, services, and income."