Theory Of Production And Cost

Meaning of Production

Raw cotton obtained directly at its place of origin i.e. the cotton fields is of moderate significance. However, the same raw cotton, when transported to the vicinity of a textile mill assumes high value. This is a classic example of how transportation to a place of significance can add to the value of a material. When looking through a layman’s lens, we often miss such points.  On that note, it’s time to decode the meaning of production.

Meaning of Production

Production is an activity of utter importance for any economy. In fact, a nation with a high level of productive activities spearheads the prosperity charts. This is because raw goods, surely are valuable, but production done upon these raw goods adds up to their value or their want-satisfying power.

We are aware of the fact that utility is the want-satisfying power of any commodity or service. Evidently, the countries that have a high level of production accompanied by the production of a wide variety of goods, are termed as the golden economies.

In light of the above-mentioned facts, we can conclude that production is the process of working upon the resources of nature and pushing or creating their utilities in order to satisfy the wants of consumers. However, the term production in Economics is more than what meets the eyes.

Production is not only concerned with the tangible aspect. Rather production also includes any service that can satisfy the wants of people. Hence now you know why the service of transportation is a process of production too. Notice how this service is intangible.

It is important to note that production cannot account for the creation of the seed, but it accounts for the transformation of the seed into a tree, the sale of the fruits grown on that tree and so on. In other words, production is not the creation of matter, which is also out of the realms of human powers.

Meaning of Production

Processes in Production

We now know the meaning of production, that production creates or adds utility. There are various processes through which we can achieve the aim of utility creation or addition to ultimately satisfy human wants. These processes are as follows:

Utility of Form

The manufacturing processes that take physical inputs and produce physical outputs, eventually increasing the utility of the resource being manufactures, are integral branches in the production tree. These processes are the most obvious forms of production. They change the form of the goods under concern, in order to satisfy a greater human want.

For example, changing a log of wood into a table or chair is a manufacturing process. Further, such processes add to the utility of form of the raw materials.

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Personal Utility

Unlike the manufacturing processes which are tangible, there are various intangible services that contribute towards the utility of the goods. For instance, apples have to be sold by merchants to consumers. The services of labor are also a part of this category. Such services are intangible but are as important as other processes of production. This imparts personal utility to the materials.

Utility of Place

Another process involves changing the place of the resources, to a place where they experience a greater demand and use.

  • This includes the extraction of natural resources from earth e.g. mining of ores, gold, coal, metal ores, etc. These are further transported to markets where they can be sold.
  • Transportation service from a place where the resource gives little satisfaction to a place where it provides a lot of satisfaction also adds up to the utility. For example, once extracted, the metal ore needs to be taken to an industrial site where it can be further processed. This concept is also known as the utility of place. This includes all the additional utility conferred through the efforts of transportation services or transport agents for the movement and marketing of goods.

Utility of Time

Lastly, storage and manipulating availability drastically change the utility of products. For example, seasonal fruits are canned and various preservation techniques are used for their storage so that they can be sold for higher prices during off-seasons.

Let’s take another example of umbrellas.  The demand for umbrellas touches the sky during monsoons.  In such a case, production of umbrellas takes place generally during the off-season and stored until the monsoon. At the advent of monsoon, the producers release their stocks of umbrellas to meet the increasing the demand. In this way, we add the utility of time through the process of production.

Let’s discuss an example where the addition of all the above-mentioned utilities takes place through production. First, the raw wool is sent to a mill for spinning and weaving (utility of form). Next, transportation of finished wool to potential market takes place (utility of place). Further, the demand for woolen clothes increases in winter, hence producers hold a majority of their stocks until winters (utility of time). Lastly personal services of transport agents, merchants, labors, etc. form an integral part of the whole process of production (personal utility).

Production through a Wider Perspective

Note that the meaning of production doesn’t always involve physical inputs and physical outputs, as already discussed. There are various services of doctors, lawyers musicians, etc. that deal with intangible inputs and outputs.

However, household jobs and services which are a result of love and affection, voluntary services and those meant for self-consumption are not a part of the production. You must appreciate the fact that an intent to get something in return should accompany the process of production.

Solved Example on Meaning of Production

Q: What is the meaning of production?

Ans: 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”.

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