Question

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

Answer 1

Firms decided to which goods or services produces in the market basically depend on the market situation. Generally firms produces that good or services which goods has higher demand in the market also firms look at the cost of goods, cost of good affect the firms decision like if cost of production is higher than its estimated revenues then firm never produce that good but if cost of production is less as compare to its estimated revenues then firms produces that good or services.also the motive of the firms also affect suppose if firm motive is social welfare then firm always produces that goods which prices low and beneficial for the society on the other if firms motive profit maximization then firms produce that good which price higher in the market.so firms decided which goods or services produces is above points.

Cost of production assessed by direct cost of production and indirect cost of production also cost of production depend on the price of raw material and labor cost, machinery cost etc.