The Concept of Production

1. define production
2. discuss the importance of the factors of production and their implications to everyday life.
3. enumerate the different kinds of business organizations;
4. examine the duties and functions of various business organizations
What is Production?
 process of turning limited
resources into goods and
services
 transforming inputs into
outputs to satisfy demands
 only consider economic
activities in the formation
of goods and services
intended for TRADE or
SELLING
https://www.dreamstime.com/bread-making-process-agriculture-concept-set-bread-making-process-vector-illustration-image134338555
 The Four Factors of
Production
1. LAND – all natural resources
2. LABOR – skilled or unskilled
workers
3. CAPITAL – capital goods
machineries, buildings, other
equipment/tools used in
production)
4. ENTREPRENEURSHIP -  the
drive to develop an idea into a
business. An entrepreneur
combines the other three factors
of production to add to supply.
https://www.thebalance.com/factors-of-production-the-4-types-and-who-owns-them-4045262
Factors of Production
FACTORS OF PRODUCTION FACTOR INCOME
Land Rent
Wage ( hourly or daily rate)
Labor Salary ( monthly or bimonthly overall
wage)
Capital Interest
Entrepreneurship Profit
https://policonomics.com/circular-flow-diagram/

Circular Flow Model

https://biophyseco.org/biophysical-economics/what-is-biophysical-economics/
Production Function
• tries to explain the efficient allocation of resources
• shows the relationship between the amount of inputs ( factors of
production) and the quantity of outputs ( goods and services)
• explained by the production possibility frontier (PPF) and marginal
product concepts
 Law of Diminishing Marginal
Returns
• also called diminishing marginal productivity
• if at least one factor of production is fixed, the total output
resulting from an increase in the variable input is
increasing BUT the additional or extra output produced
by the additional input is DIMINISHING ( decreasing)
Law of Diminishing Marginal
Return restated

“ As you add variable resources to fixed

resources, the additional output will
eventually decrease
Example
Number of Workers Number of Pizza Marginal Product
( Input) ( Total Product) (Additional output
generated by
adding additional
workers (input)
0 0 0 increase due to
1 5 5 specialization
2 15 10
3 20 5 Law of Diminishing
4 22 2 Marginal Returns
set in
5 22 0
6 18 -4 Negative Return
 25

Number of Pizza 20

15

10
Total Product
5 Marginal Product

0
0 1 2 3 4 5 6
-5
Number of Workers
-10
Production Possibility Frontier
• illustrates the MAXIMUM production capacity of a firm given the
available resources
• graphically represented by a curve ( production possibility curve or
PPC)
• assumes that all given inputs are utilized efficiently

• Law of Increasing Opportunity Cost

“ as you increase production of one good, you give up more in
producing the other good.”
Assumptions in the PPF
• the economy is employing all its available resources
( FULL EMPLOYMENT)
• the quantity and quality of the factors of production
are fixed
• The economy is producing only 2 goods: Consumer
goods (directly satisfy wants and needs)
Capital goods (indirectly satisfy wants by
making possible the more efficient production
of consumer goods)
Example
Bread Tablets
500 0
400 10
300 20
200 30
100 40
0 50
Bread

Tablet
4 types of Business Organizations
• Sole Proprietorship
• Partnership
• Corporation
• Cooperatives
 SOLE PARTNERSHIP CORPORATION COOPERATIVE
PROPRIETORSHIP
NUMBER OF 2 OR MORE At least 2 INCORPO- DEPENDS ON THE
OWNERS 1 RATIONS NUMBER OF MEMBERS

owner is the main decision partners share decision
maker and responsible for making and other business
the management of the responsibilities
CHARACTERIS- business profit is shared among
TICS partners
-General Partnership
- Limited Liability Partnership (
LLP)
-separate legal entity with - jointly owned and
rights and obligations managed by members
( B.P. Blg 86) - voluntary membership
- can enter into contracts - enjoyed tax privilege
- owners have limited ( by virtue of R.A. 9520)
liability
- shareholders and
administrators are bound
by their Article of
Incorporations (AOI) and
by-laws

REQUIRE- 1. Registered name 1. verify business name and 1. verify business name 1. Get organized
MENTS FOR 2. Permits and clearances reservation and reservation 2. Prepare general
REGISTRA- 3. Tax receipts 2. Article of Partnership(AOP) 2. AOI, bylaws statement called
TION 4. self-employement and joint undertaking 3. Paid -up capital deposit economic survey
certificate 3. pay fees 4.buy and register stock 3. draft by-laws
4. certificate of Recording of and transfer books 4. draft atticles of
the Articles of Partnership coopeation
5. secure bond for
accountable officers
1. DTI Securities and Exchange Cooperative
AGENCY WHERE 2.Barangay/City Securities and Exchanage Commission (SEC) Development Authority
TO REGISTER 3. BIR Commission (SEC) (CDA)
4. SSS
 Remember These Suffixes

• Co. ( Company) - can be used for General Partnerships

• Coop. ( Cooperative)
• Corp. ( Corporation)
• Ent. ( Enterprise)
• Inc. ( Incorporated)
• Ltd. ( Limited)
• Ltd. Co. (Limited Company)