Factors influencing economic decisions of Firms (Producers)

 Costs of production-increasing costs can reduce a firm’s output, unless

the prospects for profits are high, in which case, the firm will produce
even if costs are increasing.
 Profits- supernormal profit is the excess of total revenue over total
costs. Once there is a potential for profits, firms will invest. In economics
we assume that producers are rational and are attracted by profits.
 Resource base-the resource base is the quality and type of resources
available to the firm. The availability or lack thereof of resources will
affect a firm’s decision to produce a given product. If the resources are
not available, then the firm will not be able to produce.
 Industrial relations- Cordial industrial relations will make the firm
willing to employ more labour while poor industrial relations will make
the firm more inclined to use capital intensive methods of production
instead of labour-intensive methods.
 Changing demand for the product. If the firm is faced with falling

demand then the firm will most likely cut back on the production of the
product while if there is an increase in the demand for the product
being produced then it is anticipated that the firm will produce more of
the product provided that all factors of production can be accessed.