Introduction:
Production involves the use of production factors in producing the most effective level. In addition, manufacturers also need to use the correct scale to ensure that the resulting output to fulfill the law of diminishing marginal returns. In this chapter also, we will explain the relationship between cost and output. We will define the cost involved in production process, identify various types of costs and need to analyze short run costs and long run costs. At the end of this chapter, we will explain differentiate between small firm and large firm.
Definition of Production
Production means the process of using the factors of production to produce goods or services. In other words, production means the transformation of inputs into outputs.
Input is refers to those things that a firm buy for use in production process such as land, labour, capital and entrepreneur. Output is refers to what we get at the end of the production process or refers to finished goods.