MEANING OF PRODUCTION

MEANING OF PRODUCTION

Production is a very important economic activity. As we are aware, the survival of any firm in a competitive market depends upon its ability to produce goods and services at a competitive cost. One of the principal concerns of business managers is the achievement of optimum eflciency in production by minimising the cost of production. The performance of an economy is judged by the level of its production. The amount of goods and services an economy is able to produce determines the richness or poverty of that economy. In fact, the standard of living of people depends on the volume and variety of goods and services produced in a country. Thus, the U.S.A. is a rich country just because its level of production is high

In common parlance, the term ‘production’ is used to indicate an activity of making something material. The growing of wheat, rice or any other agricultural crop by farmers and manufacturing of cement, radio- sets, wool, machinery or any other industrial product is often referred to as production. What exactly do we mean by production in Economics? In Economics the word ‘production’ is used in a wider sense to denote the process by which man utilises resources such as men, material, capital, time etc, working upon them to transform them into commodities and services so as to make them satisfy human wants. In other words, production is any economic activity which converts inputs into outputs which are capable of satisfying human wants. Whether it is making of material goods or providing a service, it is included in production provided it satisfies the wants of some people. Therefore, in Economics, activities such as making of cloth by an industrial worker, the services of the retailer who delivers it to consumers, the work of doctors, lawyers, teachers, actors, dancers, etc. are production.
According to James Bates and J.R. Parkinson “Production is the organized activity of transforming resources into finished products in the form of goods and services; and the objective of production is to satisfy the demand of such transformed resources”.

It should be noted that production should not be taken to mean as creation of matter because, according to the fundamental law of science, man cannot create matter. What a man can do is only to create or add utility to things that already exist in nature. Production can also be defined as creation or addition of utility. For example, when a carpenter produces a table, he does not create the matter of which the wood is composed of; he only transforms wood into a table. By doing so, he adds utility to wood which did not have utility before.

Production consists of various processes to add utility to natural resources for gaining greater satisfaction from them by:

(i) Changing the form of natural resources. Most manufacturing processes consist of use of physical inputs such as raw materials and transforming them into physical products possessing utility, e.g., changing the form of a log of wood into a table or changing the form of iron into a machine. This may be called conferring utility of form.

(ii) Changing the place of the resources from a place where they are of little or no use to another place where they are of greater use. This utility of place can be obtained by:

          (a) Extraction from earth e.g., removal of coal, minerals, gold and other metal ores from mines and supplying them to markets.

          (b) Transferring goods from where they give little or no satisfaction, to places where their utility is more, e.g., tin in Malaya is of little use until it is brought to the industrialised centres where necessary machinery and technology are available to produce metal boxes for packing. Another example is: apples in Kashmir orchards have a little utility to farmers. But when the apples are transported to markets where human settlements are thick and crowded like the city centres, they auord more satisfaction to greater number of people. These examples emphasise the additional utility conferred on goods, by all forms of transportation systems, by transport workers and by the agents who assist in the movement and marketing of goods.

(iii) Making available materials at times when they are not normally available e.g., harvested food grains are stored for use till next harvest. Canning of seasonal fruits is undertaken to make them available during ou-season. This may be called conferring of utility of time.

(iv) Making use of personal skills in the form of services, e.g., those of organisers, merchants, transport workers etc.

The fundamental purpose of all these activities is the same, namely to create utility in some manner. Thus, production is nothing but creation of utilities in the form of goods and services. For example, in the production of a woollen suit, utility is created in some form or the other. Firstly wool is changed into woollen cloth at the spinning and weaving mill (utility created by changing the form). Then, it is taken to a place where it is to be sold (utility added by transporting it). Since woollen clothes are used only in winter, they will be retained until such time when they are required by purchasers (time utility). In the whole process, the services of various groups of people are utilised (as that of mill workers, shopkeepers, agents etc.) to contribute to the enhancement of utility. Thus, the entire process of production is nothing but creation of form utility, place utility, time utility and/or personal utility.

It should be noted that the production process need not necessarily involve conversion of physical inputs into physical output. For example, production of services such as those of lawyers, doctors, musicians, consultants etc. involves intangible inputs to produce intangible output. But, production does not include work done within a household by anyone out of love and auection, voluntary services and goods produced for self consumption. Intention to exchange in the market is an essential component of production.

The money expenses incurred in the process of production, i.e., for transforming resources into finished products constitute the cost of production. Although cost of production is not taken into account for a pure production analysis, it is an extremely vital matter for any business decision-making. Nevertheless, in the theory of production, we would confine ourselves to laws of production, production function and methods of production optimisation. However, it is necessary to remember that a production decision cannot depend merely on physical productivity based on operating eflciency alone. The profitability of a productive activity would depend upon the revenue realised from the output and the costs incurred in raising that output. Aspects of cost and revenue will be discussed in the following units.

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