What is Production ?


Production is the process of making or manufacturing goods and products from raw materials or components. In other words, production takes inputs and uses them to create an output which is fit for consumption. In other words, production is the creation of utilities. Production may be defined as the transformation of raw materials to finished goods and the distribution and provision of goods and services in other to satisfy human wants.   .

Concept of Total, Marginal and Average Productivity
TOTAL PRODUCT: It is the entire quantity of a commodity produced with a given quantity of productive resources. i.e. TP = AP × Q
AVERAGE PRODUCT: This is the total product divided by the amount of variable input used to produce the total output. i.e. AP = TP /Q
MARGINAL PRODUCT: This is the additional unit of the variable input. .e MP = Change in TP/ Change in Q

The law of diminishing returns 

states that as more of the variable factor is added to other factors which are constants output will eventually increase at a decreasing rate, if an increasing quantity of a variable factor are applied to a given qualities of fixed factors, output might increase at first but at a time will come when each additional unit of variable factor will add less to total output than the previous unit.
Importance of the law of diminishing returns 
It determines the shape of short run costl
It helps in proper combination of factor inputs 
It helps in wages determination, e.t.c

   . There are four factors,means or agent of production; this are:LandLabourCapitalEntrepreneur

Land in economics refers to free gifts of nature. It is not just the Earth surface but it is it also includes natural resources such as water, sunshine, weather, Forest, mineral deposits, animals, hills and fishing ground

  • Fixed Nature: Land is relatively fixed in supply. It is extremely difficult for man to increase the quantity of land since it is a free gift of nature.
  • No Cost of Productionp: It has no cost of production.varies in quality. This, however, depends on the location of the land,some areas are more fertile than the others.Rent: 
  • The reward for land is called rent.Mobility: Land cannot be moved at will from one geographical location to another.
  • Land  is not homo genius; no two parcels of land can be the same.
  • Subject to Law of Diminishing Returns: Land is subject to the law of diminishing return
  • Land promotes economic activities.
  • Production has been made possible by availability of land.
  • Land aids agricultural activities.Aquatic activities are being carried out on land
  • .All the mineral resources that sustained a lot of Economics all over the world, including Nigeria, obtained from land.
  • Land surface has been used for building homes,factories,e.t.c

The law of diminishing returns state that has successive units of a variable factor or resources is applied to a given fixed factor, example land, output will increase at first but it will get to a point at which the addition of one more unit of the variable factor will result in less additional units of output.


TOTAL PRODUCT (TP)Total product refers to the total quantity of goods produced at a particular time as a result of the use of all the factors of production.
 It can be expressed mathematically as :TP = AP × Qwhere; TP = Total product            AP = Average product             Q = Quantity or Unit of Output
 AVERAGE PRODUCT (AP)Average productrefers to total Total divided by the number of variable factor of production lab
our. It can be expressed mathematically as:AP = TP/ Qwhere; AP = Average product            TP = Total product             Q = Quantity or Units of Output .

MARGINAL PRODUCT (MP)this is the additional products produced as a result of the application of additional unit of a variable factor when all other factors are fixed full-stop it is expressed mathematically as:MP = ∆TP/ ∆Q = TP1 - TP0 / Q1 - Q0 


The relationship between total product,  average product and marginal product are as follows: The AP reaches its maximum at point J at the typical. The point TP curve. The point J is what point at TP curve where a ray of line drawn from the origin touches the TP curve at a point of inflection. As that point, output can still be measured by applying more variable inputs to the fixed input.The input level at which MP is equal to zero corresponds to the point at which TP curve maximum.

Labour may be defined as all human efforts both physical and mental that are directed towards production. Labour can also be described as the varieties of natural talent available within the society. The reward for labour is wages.

Labour us human factor, thus it's is controllable.Labour is sensitive to the environment in which it works.It requires skills through training.Labor needs motivation in order to increase productivity.labour changes either positively or negatively according to circumstances.Label is not storablelike capital.


Capital which is one of the factors of production is the stock of previous wealth invested in order to obtain future wealth. Capital may be tools or equipment that make the production of goods and services possible. The reward for capital is interest.


Capital could either be in physical or liquid form.the physical capital includes tangible assets such as buildings, motor, vehicles , machines, e.t.c.liquid capitalism form of money which can easily be converted into physical capital.Capital is highly durable.Capital is a man-made factor of production.Capital is subject to depreciation.Capital is large-scale production and division of labour.


Social capital consists of those capital goods which are collectively owned, that is, the social infrastructure. Social capital consist of a nation's or community's stock of social assets such as public hospitals and schools, roads electricity, pipe borne water, e.t.c.



This is an adorable assets that can last for a very long time and are required in the production process. Examples include: machineries, buildings, motor vehicles, furniture, e.t.c.

This type of capital includes all materials, cash in hand that can easily be converted into final goods.

An Enterpreneur is one of the factors of production. It can be defined as a factor of production that bears the risk of business activities, co-ordinates and organizes all other factors of production for the production of goods and services. The reward for entrepreneur is either profit or loss

  • Initiation of production: Enterpreneur initiate the production of process.
  • Risk-bearing: The success or failure of the firm depends on him.
  • Co-ordination of factors of production: He coordinator and organizers and other factors of production.Administration: He bears the burden of administration.
  • Provision of capital provides the finance to start the business and also the money for the day-to-day running of the organisation the entrepreneur can source found from personal savings through borrowing.
  • Taking strategic decision he formulates policy and take strategic decision that will be beneficial to the organisation we decide on what to produce what method and in what proportion

He manages the business he is responsible for the management of the business he plans controls and motivate all other factors of production.

Factors that determines volume of production

  • Quality and quantity of factors of production :The resources required for production such as land labour capital and entrepreneur  should be sufficient and of high-quality, this is because low quality resources leads to low production as a matter of fact the available resources must be in abundance and efficient.

  • Efficiency of management: The volume of production will be determined by the efficiency of management level,the management is made up of people who are competent and capable which we have a positive impact on productivity
  • Level of technology: Improvement in the techniques of production and technological advancement will give rise to increase in the volume of production ,for example the level of production in advanced countries has been on the increase because of the new innovation in technolog
  • The size of the market : By the size of the market we are referring to the level of demand. The amount of good sold or prroduce will depend on the demand  if the quantity demanded is ,then more will be produced .A large market for a product will ensure an increase in the volume of production.

  • Nature of the product : The  durability or perishability of a product will determine the quantity of the product. Durable and long-lasting products can be produced in large quantity and stored until  they are needed but for perishable goods. The volume should be based on the demand.
  • The policy of the government the more favorable the policy of the government the more the volume of production in the government grant tax concession and give subsidies to business organisation the cost of production will reduce and this is likely to increase the level of output when the reverse is the case then the volume of production will reduce.
  • Availability of capital if there is sufficient capital for investment purpose then the volume of production will increase financial resources which are needed to purchase plants and machinery equipments and raw material which are required for productive activities they are also needed for the day-to-day running of the organisation.
  • Availability of infrastructural facilities availability of social amenities like good communication and power encourages both local and foreign investment they are needed for production two values to take place investment in social amenities as multiplier effect on production level one reason why the volume of production is low in West Africa is because there is lack of social amenities..
  • Availability of raw materials raw materials are available in large quantity and at the right time or goods will be produced production cannot take place without sufficient raw materials.
  • Availability of storage facilities the volume of production will increase where there are storage facilities to keep the goods until they are needed.


It is a business unit established for the purpose of carrying on some kind of economic activities like production and distribution of goods and services it is a business unit of decision-making in an economy a firm can also be referred to as a business organisation which owns and direct the activities of one or more of it plants or offices in firm is a unit of industry it includes sole trading partnership and joint stock company example of firms in Nigeria's are dangote cement Cadbury Nig PLC etc


An industry can be defined as a group of firms producing similar products for the same market the industry is made up of many firms examples are the banking industry the construction industry the manufacturing industry and the transportation industry.

Classification of a firm.
A firm can operate idle on a smaller scale it can be divided into small or large first for instance.


These our business units whose productive capacity and scale of operation and small they require a small amount of capital to set up and operate small firms are mainly found in the primary sector.

Features of small firm

  •  Small  capital base: in this case ferns require small amount of capital outlay to set up and operate there is a limit to the amount of money they can borrow from financial institution
  • Small scale of operation the scale of production is more they try to produce on a small scale for few customers thereby limiting the level of output the productive capacity is small
  • Engage mainly in primary and directive service sector of the economy for example agriculture and accountancy.
  • The employee simple technique of production these firms employ simple technical production small firms do not use specialised and heavy machinery as in the case with large firms the technical know-how is usually low therefore they do not use mass production technique.
  • Employment of film stars small firms by their nature require field workers to carry out their operation the employee stars that they are capable of paying their remuneration.
  • The market for their product is small this is because small firms do not embark on large-scale production or advertising they produced to meet the demands of their customers which is usually local.


These organisation whose scale of operation is large large firms require much capital outlay to finance their operation they also embark on Mass production of goods large firms can finance their operations through loans from financial institution they are found mainly in the secondary and commercial sectors EG Nestle Nigeria PLC Cadbury Nigeria PLC.

Features of large firms.

Large-scale production this organisation embark on Mass production of goods this is made possible because of their operation which involve capital-intensive last fence used specialised equipment to produce goods.

  • Large capital requirements large firms require large to finance or to set up for the day-to-day running of the organisation this finance can be obtained from financial institution.
  • Provision of standardized products product of large-scale firms are standardized and of high-quality ,the necessary quality control and and specialisation measures are put in place.
  • Requires large market such firms require large market to sell their product they embark on Mass production of goods and spend lots of money on advertising in order to sell these groups the markets should be large enough.
  • Specialised technique of production.
  • The technique of production are highly specialised .large firms can afford to use specialised equipment which is highly sophisticated this technique of production and shows that they can meet demand of their products.


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