Factors which influence the decision on what goods and services to produce

Business studies study module
  • Profitability

Businesses tend to provide goods and services that would yield maximum profit.

  • Level of competition

In order to survive in a competitive market, firms must come up with products with products that consumers prefer. A firm may therefore develop products that are not currently available or copy rivals ideals and improve on them.

  • Cost of production

A firm would produce commodities for which production costs are low.

  • Demand/ market

A firm will produce commodities that have the highest demand since demand leads to high sales volume.

  • Availability of resources

A firm can only produce commodities for which the necessary resources are available. Such resources include raw materials, labor, equipment, adequate space and appropriate technology.

  • Government policy

A firm should produce goods which are favored by the government policy e.g. low taxation and subsidies. Firms should not produce goods that are illegal as it will be breaking the law.

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