Production Theory

In: Business and Management

Submitted By bkageni12
Words 1025
Pages 5
TOPIC 5: PRODUCTION THEORY

Production refers to the creation of wealth for the sole purpose of utility in order to improve the welfare of people. It is creation of goods and provision of services to satisfy human wants.

Forms of production a) Direct production.
Also known subsistence production and it refers to production of Goods for own consumption. It s output is normally low. b) Indirect production.
It is production for sale. It is also known as market economy. It uses modern production methods / technology.

Levels of production
There are three levels of production. a) Primary level.
This is the basic level where production starts. It’s sometimes known as extraction level and involves production of raw materials. E.g. mining

b) Secondary level.
This is also known as transformation / manufacturing level. In this level output from primary level is used to produce finished goods or services.
E.g. engineering, carpentry c) Tertiary level.
This summarizes the production process. It involves the supply of finished goods and services to the final consumer.
E.g. transport, banking

Types of goods produced 1) Consumer goods.
These are goods which satisfy human wants directly. They are categorized into durable and non-durable goods. 2) Producer goods.
This refers to categories of goods which give indirect utility to the consumer. 3) Services.
These are intangible economic goods. E.g. teaching, insurance

Factors of production
These are also known as inputs or factors of production or economic sources. They are those things necessary for production to take place.

1) Land
It represents all natural resources that help in the production process. It provides space for the activity of the other factors of production. It differs in fertility and its both mobile and immobile. It provides raw materials such as…...

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