The Purpose of Business Activity
- The purpose of business activity is to produce goods or services that meet customer needs
- This is accomplished through the process of production
- The factors of production are combined in such a way so as to minimise the costs and maximise the sales revenue
- Adding value is the process of taking inputs and combining them in such a way that customers find them useful and are willing to pay more for the end product than the value of the raw materials used to manufacture it
Diagram: The Production Process
The purpose of business activity is to take inputs, add value to them, and create products which meet customer needs
Diagram analysis
- Raw materials and the other factors of production are used to produce goods and services
- Different types of costs are incurred in production, and when the firm sells its products, they receive sales revenue
- If the total costs incurred in the process are less than the sales revenue, the firm will make a profit
- If the total costs incurred in the process are greater than the sales revenue, the firm will make a loss