Production, Cost and Revenue Analysis


Production Analysis:


Meaning of Production

Production is the conversion of input into output. The factors of production and all other things which the producer buys to carry out production are called input. The goods and services produced are known as output. Thus production is the activity that creates or adds utility and value. In the words of Fraser, “If consuming means extracting utility from matter, producing means creating utility into matter”. According to Edwood Buffa, “Production is a process by which goods and services are created”


Factors of Production

As already stated, production is a process of transformation of factors of production (input) into goods and services (output). The factors of production may be defined as resources which help the firms to produce goods or services. In other words, the resources required to produce a given product are called factors of production. Production is done by combining the various factors of production. Land, labour, capital and organisation (or entrepreneurship) are the factors of production (according to Marshall).

We can use the word CELL to help us remember the four factors of production: C. capital; Entrepreneurship; L land: and L labour.


Characteristics of Factors of Production

1. The ownership of the factors of production is vested in the households.

2. There is a basic distinction between factors of production and factor services. It is these factor services, which are combined in the process of production.

3. The different units of a factor of production are not homogeneous. For example, different plots of land have different level of fertility. Similarly labourers differ in efficiency.

4. Factors of production are complementary. This means their co-operation or combination is necessary for production.

5. There is some degree of substitutability between factors of production. For example, labour can be substituted for capital to a certain extent.











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