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Explain the Theory of Production
Cost and Production analysis is central for the unhampered functioning of the production process and for project planning. Production is an economic activity which makes goods available for consumption. Production is also described as a sum of all economic activities except consumption. It is the process of creating services or goods by utilising numerous available resources. Achieving a certain profit needs the production of a certain amount of goods. To attain such production levels, some costs have to be incurred. At this point, management is faced with the task of determining an optimal level of production where average cost of production will be minimum. Production function displays the relationship between quantity of a service/good produced (output) and resources or factors (inputs) used. The inputs used for producing these services and goods are known as factors of production.
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