Hey guys! Welcome back. I’m writing today about the theory of production. This subject is related to engineering economics. In this blog, you will be able to know about production, the factors on which production depends. Types of production are also discussed in this blog. There is a function of production which is briefly explained below.
THEORY of PRODUCTION
Production
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"Production is a process of combining various material inputs and immaterial inputs in order to make something for consumption. It is the act of creating output, a good or service which has value and contributes to the utility of individuals."
source: wikipedia
The process of converting or transforming the input to output is called production. It’s like using different raw materials to make a new product. Converting useless materials to useful is also production. Each new product needs some input sources for its development. The production is related to its cost. While producing a product, the major aspect we see is the cost. How much cost is required for making the product is studied in complete detail? Producer observes what he has and what he need for making the product.
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Input sources are collected for having output from that. Raw materials are combined in such a way that a useful product comes into existence.
Factors on which production depends
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Production depends upon its factors. As there are certain factors that sum up to describe production. Production is depending upon its input sources. As the cost of input increases the output also gets costly. The factors on which production depends are:
(1)-Land
It’s a fixed input source. Because the natural resources like air, river, sea, minerals etc. are included in them. These resources are free of cost and their cost did not increase or decrease. It also includes land which is free of cost. You don’t have to pay for the land. The land used never cost you anything with time.
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(2)-Labor
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Labor means the number of people or employs you use during production. Labor is a variable input source. Because increasing the number of people increases the input cost. Thus, labor can affect your output cost.
(3)-Capital
Capital means the man-made things you use in your production. It’s like using the different software while making a mobile. Increasing number of capital can boost your cost. It’s a variable input source.
(4)-Technology
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Technology means the machinery, robotics etc. you use during production. Using high and advance machinery can affect your input cost. But besides that, it will also increase the number of units produced. The demand for labor gets decreased with high machinery.
**Types of production**
Production is divided into further types according to its criteria. Different criteria are used in productions. These types differ from one another in terms of input and output sources. Three types of production are there:
Total production
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"Technology is the collection of techniques, skills, methods, and processes used in the production of goods or services or in the accomplishment of objectives, such as scientific investigation."
source: wikipedia
The production in which total number of input is used to produce output is called total production. It is that type of production in which you use all the sources available. All the given quantity of input is utilized by the firm. Total production is really important as it also provides the basis for average production.
Marginal production
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"Marginal cost at each level of production includes the cost of any additional inputs required to produce the next unit."
source: wikipedia
Marginal production is the production in which unit change in input causes a change in output. It increases or decreases the cost of output as the input changes. It can be said as the change in output due to alternation in the number of workers. When some extra input is used or removed it affects the cost of production.
Average production
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"In economics, average cost and/or unit cost is equal to total cost divided by the number of goods produced (the output quantity, Q)."
source: wikipedia
Average production is defined as the cost per unit of the firm. It is the cost that occurs for producing one unit of production. We can say it the average or arithmetic mean of the total production. Average product is taken out by dividing the total products used over the variable input. Average product is generally less efficient than the marginal and total production.
Types of function of production
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Production has some functions on which it depends. These functions are really important in term of production. According to these functions, production is categorized into two types:
Short term production
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Short term production depends upon the time fixed for production. This production is for a short fixed period. Usually, a short-term production comprises of less than five years. Short term production depends upon the fixed and variable factors. The fixed factors in short-term production are land and machinery. The variable factors in short-term production are labor, technology, raw material and capital.
Long-term production
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"A term is a period of duration, time or occurrence, in relation to an event. To differentiate an interval or duration, common phrases are used to distinguish the observance of length are near-term or short-term, medium-term or mid-term and long-term."
source: wikipedia
It’s a period of production in which all the factors of production are variable. Factors are changing continuously with time but producers manage the overall cost. There is a competition in long-term production so cost is varying with time. The company offers different alternations in cost for increasing the demand of production. The long-term production occurs mostly in big companies.
***Best Regards***
Kiran Abid
