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PRODUCTION 1. Production can be defined as the creation of wealth which in turn, adds to society's welfare .It is a vital link in the process of satisfying wants; As man's wants are almost unlimited relative to the resources available, it is important in production, then, that the limited resources be used efficiently in order to create the maximum possible welfare. 2. At a general level, all economies, irrespective of their organisation, face the same basis decisions of what, how and for whom to produce, subject to their production possibilities. In a mixed economy, such as the United Kingdom, some production decisions are left to private enterprise and the market mechanism whilst others are taken by the government: the production by shoes for example, is the result of the

decisions of private firms, where as the quantity of hospital services or military tanks produced is the result of political decisions. 3. The firm and its The total level of output in an economy is of objective course, the sum of the outputs of all the individual firms. It is important at the outset, therefore, to explain what is meant by a firm and to consider some of the main factors which motivates firms to produce goods and services. 4. Definition: A, firm is a decision-making production unit which transforms resources into goods and services which are ultimately bought by customers, the government and other firms. 5. Traditional economic theory has assumed that the typical firm has a single objective-to maximise its profit. No distinction is drawn between the objective of a

comer-store proprietor and that of the largest firm. The modern theories of the firm, however, do acknowledge that firms may -have other objectives, such as sales-revenue maximisation or the maximisation of managerial utility. 6. Types of busi ness units. Consider now the legal status of the differant, types of firms in a western economy, such so the United Kingdom. 7. One-man business. In terms of numbers, the one-man business (or sole proprietorship) is the most common type of firm. Typically it is a small-scale operation employing the moat a handful of people. The proprietor himself is normally in charge of the operation of the business, with the effect that he is likely to be highly motivated as he benefits directly from any increase in profits. As the one-man business is

small it can provide a personal service to its customers and can respond flexibly to the requirements of the market. Decisions can be taken quickly as the owner does not have to consult with any directors. 8. Disadvantages associated with a one-man business are that the owner cannot specialise in particular functions but must Jack-of-all trades, and the finance available for the expansion of the business is limited to that which the owner himself can raise. An even bigger disadvantage is perhaps that there is no legal distinction between the owner and his business: The owner has, therefore, unlimited liability for any debts incurred by the business, so that in the eventually bankruptcy all his assets (for example his house and car) are liable to seizure. 9 One-man business as are

common in retailing, fanning, building and personal services, such as hairdressing. 10 PARTNERSHIP. The logical progression from a one-man business is to a partnership. An ordinary partnership contains from two to twenty partners. The main advantages over a one-man business are that more finance is likely to be available the influx of partners, and that each partner may specialise to some extent (for example, the marketing , production or personnel functions). The major disadvantage, once again, is that of unlimited liability. As each partner is able to commit the other partners to agreements entered into, all of the others may suffer from the errors of one unreliable or foolhardy partner. I I Partnerships are oftcn found in the professions-for example, among doctors, dentist,