Production is a process of using various material and immaterial inputs in order to make output for consumption. In Economics, production refers to the creation or addition of value; it simply transforms the inputs into output. It is the result of cooperation of four factors – land, labour, capital and organisation.
J R Hicks: "Production is any activity diverted to the satisfaction of other people's wants through exchange." When production takes place on a larger scale, the average cost is low – the benefit of economies of scale.
1. Factors of Production
Factors of production are the resources used in the process of production of commodities. They depend on each other and have a coordinated impact on production.
| Factor | Represents | Category |
|---|---|---|
| Land | Natural resources (soil, mineral deposits, seas, rivers, natural forests, fisheries) | Primary |
| Labour | Human resources | Primary |
| Capital | Saved amount used as investment (saving = production minus consumption) | Secondary |
| Organisation / Enterprise | A special form of labour | Secondary |