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Production Cheat Sheet (DRAFT) by

Understanding the process of production while looking also into the resources.

This is a draft cheat sheet. It is a work in progress and is not finished yet.


making Gs or providing Ss to in order to satisfy people's needs and wants
those who make/p­rovide Gs&Ss
factors of production - land, labour and capital
Gs & Ss produced
Production process is not complete until the Gs & Ss actually reach the consumers. Parts of the process are also the wareho­uses, transp­ort­ation, insurance, etc.

Production process

Production adds value to resources

Value added
the difference between the market price paid for a product by a consumer and the cost of the natural and man-made materials, components and resources used to make it
the increase in the value of the resources and the market price paid for the final product or service
Value added = profit + wages

Valuation of nonmarket housework

Calcul­ation of the value of Gs & Ss produced in a country by economists
some can't be calculates (washing dishes, cleaning your room, housework, since we can't put price on them)
how much will people pay for Gs & Ss
Gender disparity
housework is still usually provided by women

The aims/o­bje­ctives of firms

most private sector firms aim to maximize their profit
there are also different types of organi­zations such as charities, not-fo­r-p­rofit organi­zations or public sector organi­zations
surplus of revenue over costs
reward for enterprise and risk taking, usually the main motivation for the producers

Maximizing profits

Profit maximi­zation
involves choosing factor inputs, production methid, outputs and prices that will earn a firm the greatest amount of profit possible
maximizing the difference between its total costs and total revenues
Selling Gs & Ss earn revenue for the firm. Profit is what is left from revenue after all costs are deducted.

Profit in economics

pure profit for economist
revenue - (all costs + OC)
proft for an entrep­reneur
value of sales - costs
costs are wages, materials and other costs
In economics is also included the opport­unity cost of production or the cost of the next best altern­ative use in costs.

Other objectives

Social entrep­reneurs
people who organize resources and activities to hepl adress social and enviro­nmental issues over maximizing their profit
they usually reinvest any profit or surplus of the revenue left into reaching their social or enviro­nmental goals
Social enterp­rises
firms created by social entrep­reneurs
examples in health and social care, retailing, renewable energy, recycling, education, also it could be a charity, etc.
Examples of social enterp­rises
Providing a public service - education or health­care, etc.
*Providing a charity - the Britsh Heart Founda­tion, theRSPCA, etc.
Non-profit organi­zations - buldings societies or local clubs helping people, etc.

The stages of production

Industrial sectors
group of firms specia­lizing in similar Gs & Ss, or using similar production process
Primary industry/extra­ctive sector
produce natural resources by growing plants, digging for mineral, or breeding animals, etc.
primary means it is the first stage of production
examples: crop and animal produc­tioin, forestry, fishing, mining, oil and gas extrac­tioon, etc.
Secondary industry
uses raw materials from PS for production of Gs - manufa­cturing
examples: food proces­sing, textiles, paper, chemicals, oils and gas refining, pharma­ceu­ticals, water treatment and supply, electric power genera­tion, transm­ission and distri­bution, constr­uction
Tertiary industry
these are firms selling Gs, transp­orting them or providing financial services (banks, insurance companies, building societies, etc.), schools, health servise and many other personal services.
they provide the final link in the chain of production by selling to the consumers
examples: wholes­ailing, retailing, transp­ort­ation and storage, accomm­odation services, publishing and broadc­asting, teleco­mmu­nic­ation, education, etc.

Organizing production

Individual production
one person produces the product alone (craft­sman), it is a slow process
Specalized production
organizing the labour into tasks, quicker method of produc­tion, each person specia­lizes in something different and does only that particular operation
you can produce everything you need yourself - our ancestors

The division of labour

Division of labour
the dividing up of the production process into a number of tasks, with each one completed by a different worker or group of employees
Advantages of the DoL
more Gs & Ss can be produced as the produciton process is quicker
full use is made of abilities of employees as firms choose which employee will perfor which task and they are increasing their skills
it allows the use of machinery as it allows further saving of time and effort
Disadv­antages of DoL
work may become boring due to a constatnt repetition of tasks
workers may feel alienated as workers may feel underv­alued since they no longer see the final resut of their efforts
people become too dependent upon each other since they only perform one task they are forced to wait for the worker before them to finish their part
products are all the same as the same actions are performed over and over again with no altern­ation only on special ocassions
Factor substi­tution
when labour is replaced with capital equipment and industrial robots with higher efficiency
With specia­liz­ation people need to trade to obtaing everything they need.

Worldwide specia­liz­ation

Worldwide specia­liz­ation
different countries specialize in different industries
Cuba in cigars, Japan in electr­onic, Swiss in watches, Scotch in whisky, etc.

Production and time

Increase in production
if firm wishes to increase the production usually they enforce the labour with more people employed or ask their labour to work overtime
obtaining resources such as land, capital goods, oil or coal can take long time
Time periods
Momentary run is the period of time during which firm can't increase production (no longer than a day)
Short run is the period of time during which firm can increase the production only by increasing the labour (labour is vairable factor while land and capital stay fixed)
Long run is the period of time when firm employs more of all factors of production

Changes in inputs and outputs in the short run

Total product
refers to the entire amount of output produced by all the employers together
Average product
the amount of products produced by one worker
AV = total produc­t/n­umber of workers
Marginal product
the amount of output produced by one extra unit of labour added
MP = change in TP/change in number of workers
The law of dimini­shing returns
if one/two factors of prouction are fixed in supply (land and capital) and extra units of another factor (labour) are added, the extra products produced from each extra unit will fall over time
Dimini­shing returns in economics
the decrease in the marginal output of a production process as the amount of a single factor of production is increased, while the amounts of all other factors of production stay constant
Increasing returns
employing two worker instead of one will result in double output at first but if we continue to add new workers constantly we will find ourselves with dimini­shing returns