Final answer:
(b) Production is the use of people and machinery to convert materials into finished goods or services. It includes transforming raw materials through manufacturing into higher-value goods, as well as creating services.
Step-by-step explanation:
The correct answer to the given question is production. Production is the use of people and machinery to convert materials into finished goods or services. This encompasses a range of activities, including the transformation of raw materials into goods that have a higher value to consumers. For example, in the manufacturing of a pizza, the pizzaiolo transforms basic ingredients like flour, water, yeast, tomatoes, and cheese into a delicious meal that customers are willing to purchase. Therefore, production is not solely about creating physical goods; it also applies to services and is a central activity in the business process.
The production function is the foundation of how a firm creates its goods or services. It involves the combination of various economic inputs, such as labor from the workers and machinery, which work together to produce outputs. Hence, production is responsible for how these inputs are efficiently turned into outputs that satisfy consumer needs.