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Production

1. The econ omy is employing its resources to produce goods and services. That is why these resources land, capital, labour, and entrepreneurial ability are called the factors of production.

2. There are several ways to define production. One definition is that it is any activity that creates present or future utility. Production may be equivalently described as a process that transforms inputs (factors of production) into outputs. The two description s ar e equivalent because output is something that cr eates present or future utility. Among the inputs into production, economists have traditionally included land, labour, capital, and the more elusive category called en trepreneurship.

Entrepreneurship is defined as the process of organizing, managing, and assuming responsibility for a business enterprise*. An entrepreneur is thus, by definition, a risk-taker.

3. To the above list (land, labour, capital, and entrepreneurship), it has become increasingly common to add such factors as knowledge or technology, organization, and energy.

4. A production function is the relationship by which inputs are combined to produce output. Schematically, it may be represented as a box. Inputs are fed into it, and output is discharged from it.

5. A production function may also be thought of as a cooking recipe. It lists the ingredients and tells you, say, how many pancakes you will get if you manipulate the ingredients in a certain way. In some recipes, the ingredients must be mixed in fixed proportions. Other recipes allow substitution between the ingredients, as in a pancake recipe that allows milk and oil to be substituted for eggs. Production functions can be of either of these two types.

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To get a higher mark, be ready to translate the sentences into English:

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