Production Concepts & Analysis
Production is a process of combining various inputs to produce an output for consumption. It is the act of creating output in the form of a commodity or a service which contributes to the utility of individuals.
In other words, it is a process in which the inputs are converted into outputs.
The basic proposition of the production concept is that customers will choose products and services that are widely available and are of low cost. So business is mainly concerned with making as many units as possible. By concentrating on producing maximum volumes, such a business aims to maximise profitability by exploiting economies of scale.
Managers try to achieve higher volume with low cost and intensive distribution strategy. This seems a viable strategy in a developing market where market expansion is the survival strategy for the business. Companies interested to take the benefit of scale economies pursue this kind of orientation.
In a production-orientated business, the needs of customers are secondary compared with the need to increase output. Such an approach is probably most effective when a business operates in very high growth markets or where the potential for economies of scale is significant. It is natural that the companies cannot deliver quality products and suffer from problems arising out of impersonal behavior with the customers.
Do note, the production concept is a thing of the past and was used when there was very less competition. At such times, the more you produced, the more will be the consumption of the product. An example in this case is FORD, which manufactured huge number of automobiles through its manufacturing assembly line which was the first of its kind.
Production is a process of transformation of the factors of production into the economic goods. So in term of production analysis we are dealing with the physical relationships between inputs and outputs (i.e. we are observing the dependence of physical production volume on physical quantity of the inputs).
Production analysis basically is concerned with the analysis in which the resources such as land, labor, and capital are employed to produce a firm’s final product. To produce these goods the basic inputs are classified into two divisions −
- Variable Inputs
Inputs those change or are variable in the short run or long run are variable inputs.
- Fixed Inputs
Inputs that remain constant in the short term are fixed inputs.