Question

How do firms decide which goods and services to produce, and how are the costs for production assessed?

Answer 1

Answer : Firm decision regarding production of goods and services directly dependent on various reasons such as :

• Factors of production :It means that different Factors of production play an utmost importance in producing which output of goods they can produce.
• Availability of resources is also influence the decision of production.
• Demand of the good in the market also influence the decision.
• Variable and fixed factor of production also influence.
• Level of profit they are able to attain.

Cost of the production assessed as follows :

• Production of good incurred two types of cost i.e
• Direct cost are that which traceable According to production of goods and services includes cost of materials and labor.
• Indirect cost which cannot be traced such as overhead cost of running production.
• Indirect cost included overhead such as rent and salaries where as Direct cost including raw material and labor.