Final answer:
A firm must know the sales forecast, costs of production, inventory levels, and market structure to determine items to produce, production processes, output volume, pricing, and labor requirements.
Step-by-step explanation:
Key Considerations for Production Decisions
When determining which items to produce, a firm must consider various factors including the sales forecast, the costs of production, raw material inventory levels, and the market structure. It's essential to understand the product demand, projected by the sales forecast, to decide on the volume of production.
The production and cost conditions influence decisions such as what products to produce, the production process, the amount of output, pricing, and the quantity of labor to employ. A firm also needs a thorough understanding of the market structure which involves competition levels, product differentiation, and barriers to entry for new competitors.
Therefore, the answer to the student's question is that a firm must particularly know the sales forecast to determine which items to produce. However, it is also crucial to understand the standard cost of the item, last year's production level, and raw material inventory levels. A comprehensive approach includes all these parameters along with an analysis of how much labor should be employed and at what price the firm should charge for its products.