THE CONCEPT OF

PRODUCTION
PRODUCTION
 FAJARDO – Production is the creation of
goods and services to satisfy human
wants and other needs
 INIGO – Creation of anything of value
such as goods, services or ideas that
people want and are willing to pay.
 ORCULLO – Creation of products or
services and conversion or
transformation of resources into a
finished physical product or services
needed by the market or consumers.
FIVE M’S OF PRODUCTION
 Manpower
 Money
 Machine
 Materials
 Method
FACTORS OF PRODUCTION
 Land – synonymous with natural
resources
 Labor
 Capital
 Entrepreneur
INPUT-OUTPUT RELATIONSHIP

INPUT  PROCESS  OUTPUT

Raw Manufacturing/ Finished
Materials Production Product
RULES OF PRODUCTION
 When total revenue (TR) is greater than
total cost (TC), produce more
 When the total revenue (TR) is less than
total cost (TC), stop producing
 When total revenue (TR) is equal to total
cost (TC), maintain production
COST OF PRODUCTION
 AVERAGE COST – cost of each unit
divided by the number of output
 FIXED COST – cost of production which
remains constant even if level of output
changes.
 VARIABLE COST – cost that varies
according to the volume of production
 TOTAL COST – sum of all expenditures
(VC+FC)
LAW ON PRICING
 METHODS ON SETTING THE PRICE
OF THE PRODUCT:
◦ Cost-Oriented
◦ Demand-Oriented
◦ Competition-Oriented
 COST-ORIENTED PRICING

Price = Total Cost + Mark-up

No. of Products produced
COST-ORIENTED PRICING
TECHNIQUES
 COST-PLUS TECHNIQUE – cost plus
mark-up
 BREAK-EVEN TECHNIQUE – level of
sales volume where income is equal to
the total cost
DEMAND-ORIENTED PRICING
 Based primarily on the number of demand
of the buyer for the product.
 The greater the demand the higher the
price and vice versa
COMPETITION-ORIENTED
PRICING
 A certain percentage is set to keep the
price either lower or higher than what
the competitors are charging.