7.2 Production, Costs, and Profits

We must now specify a little more precisely the concepts of production,
costs, and profits that are used by economists.

Production

In order to produce the goods or services that it sells, each firm needs
inputs. Hundreds of inputs enter into the production of any specific
output. Among the many inputs entering into car production, for
example, are steel, rubber, spark plugs, electricity, the site of the factory,
machinists, accountants, spray-painting machines, forklift trucks, lawyers,
engineers, and managers. These inputs can be grouped into four broad
categories:

inputs that are outputs from some other firm, such as spark plugs,

electricity, and steel

inputs that are provided directly by nature, such as the land owned or

rented by the firm

inputs that are the services of labour, provided by workers and

managers employed by the firm

inputs that are the services of physical capital, such as the facilities

and machines used by the firm