The way that businesses create products and services is
known as the production process.
There are three main parts to the production process as can
be seen in the diagram below:
A firm must purchase all the necessary inputs and then
transform them into the product (outputs) that it wishes to
How well a firm does this is known as the productive
efficiency of a firm.
If it is efficient the cost per unit of
production will be lower and allow
the firm to sell at a lower price.
Ultimately, the objective of the
production process is to create
goods and services that meet the
needs and wants of customers.