Production and Business Organizations AP9

Production

The process of transforming inputs into outputs to satisfy demand.

Economic Activity

Any pursuit that results in the creation of economic goods for trade or sale.

Economic Goods

Goods and services that result from production and have economic value.

Factors of Production

Land, Labor, Capital, Entrepreneurship.

Land

Natural resources used in production; income = Rent.

Labor

Human effort and skills in production; income = Wage/Salary.

Capital

Man-made resources like machines and technology; income = Interest.

Entrepreneurship

The ability to organize other factors for profit; income = Profit.

Production Function

Relationship between inputs and quantity of outputs.

Fixed Inputs

Inputs that remain unchanged regardless of output level.

Variable Inputs

Inputs that change with the level of output.

Short Run

Period when at least one factor of production is fixed.

Long Run

Period when all inputs can be varied.

Law of Diminishing Marginal Returns

Adding more workers increases output but eventually slows (e.g., too many cooks).

Production Possibility Frontier (PPF)

Shows maximum production combinations given resources.

Pareto Efficiency

Resources used in the best way with no waste.

Primary Sector

Extraction of natural resources (e.g., agriculture, mining).

Secondary Sector

Processing raw materials into finished goods (manufacturing).

Tertiary Sector

Services that enable distribution and sales.

Sole Proprietorship

Business owned by one person; simple, small capital.

Partnership

Business with two or more owners sharing profit and responsibility.

Corporation

Business owned by shareholders; large-scale (e.g., SM Corp).

Cooperative

Business jointly owned and managed by members to meet common needs.