Business Production Economics and Organizational Structure

Understanding Value Added and Production Technologies

Value added is the extra utility that production brings to items, giving more value to things than they had before being subjected to this process.

Production Technologies: This refers to the set of processes, production equipment, and machinery where, through the proper factors of time, material, human, and organizational resources, a good or service is performed.

Perspectives on Production

• Economic Perspective: The purpose of production is the circular flow within the line.
• Utilitarian Perspective: Indicates the function that the production serves.
• Technical Perspective: Focuses on how the production is carried out as described.

Economic Efficiency and Cost Structures

Economic efficiency involves selecting the cheapest production technology or the most technically efficient option among those available.

Differences Between Fixed, Variable, and Total Costs

• Fixed Costs: These match directly with costs that do not vary even if the quantity produced changes.
• Variable Costs: These are proportional to the number of units that are produced.
• Total Costs: The sum of both fixed and variable costs.

Cost Formulas: Average and Marginal

Average Costs: These represent the cost per unit of output.
Formula: AC = Total Cost (TC) / Number of units produced.

Marginal Costs: These represent the cost of producing one additional unit.
Formula: MC = Increase in Total Cost / Increase in Quantity (Q).

Economies of Scale and Distribution Channels

Economies of Scale: This is the name for the process that enables large enterprises to reduce unit costs by increasing their production.

Distribution Channels: A distribution channel is any means used to ensure products traverse the path from the producer to the consumer.

Classification of Business Entities

Companies are classified according to certain objectives:

Sectors of Activity

• Primary Sector: Consists of companies engaged in the exploitation of natural resources.
• Secondary Sector: Formed by companies engaged in industrial activities.
• Tertiary Sector: Encompasses two groups of enterprises: commercial and service.

Ownership of Production Factors

• Private Companies: These are owned by individuals or other private companies.
• Public Companies: These are owned by the state or any other entity of a public character.

Core Components of a Company

• The Human Element: All persons connected with the company.
• Capital Goods or Production: These are the economic goods the company possesses, which can be categorized as:
  • Fixed Assets: Comprising property or equipment assisting in the production activity permanently.
  • Current Assets: Property renewed from time to time and assets that are in cash circulation.
• The Organization: A set of authority relationships, coordination, and communication activities ordered by company members for internal and external operations. It is customary to distinguish a series of areas with specialized functions:
  • Procurement, production, and commercial.
  • Human resources.
  • Financing and investment.
  • Management and Address.
• The Environment: External factors that condition the performance of the company. According to their degree of influence, we can distinguish:
  • General Environment: The group of factors that affect any type of company equally.
  • Specific Environment: Includes factors that influence the actual operation of the specific company.