Production capabilities: their characteristics
The direct return to the economy from direct investment in production-related assets is the name of the production opportunity.
The main obstacle limitingproduction capacity, is such a factor as the usual shortage of required resources. Consuming them on the production of a product means that they will not be enough to create other products. This situation makes the directors of companies choose which products to produce first.
When analyzing this curve, economists can visually assess the production capabilities that the firm has at this stage, as well as make the necessary conclusions for further work.
The replacement law works just on the curveproduction opportunities. It consists in the following: with the full-scale use of a resource for the production of the same technology, as well as with increasing volumes of output of this product, the number of units of another kind is automatically reduced, for the release of which the same resource is needed.
It should also take into account the fact that prices forany kind of products produced by the enterprise in mass quantities will grow anyway, since alternative costs always affect over time. The growth of such costs is that alarming call, after which the company is recommended to either improve the technological process or stop the production of this type of product, since it will not pay for itself. If there is an incomplete expenditure of resources, then it is necessary to change the technological process. If you use all the technological capabilities, you must definitely abandon the release of this product.
The productive capacity of society isthe aggregate of all production capacities of a particular territory. Competent use of resources by the company will allow not only to save a certain amount of resources, but also to improve the available technological processes, thereby reducing the opportunity costs.
Thus, when analyzing the state of productionit is required first to get acquainted with the indicators of production possibilities and to establish whether it is possible to increase production or whether it is necessary to improve it first.