Transformation of Farms into Firms (10 minutes)

A farm is land set aside for the production of crops, livestock, birds and other food and cash generating products. A firm is an organized combination of production resources of land, labor and capital by an entrepreneur to produce a product or a combination of products.

Some farms are informally organized for the purpose of simply sustaining life at subsistence levels. These practices constitute 'farming as a social livelihood'. Other farms are formally organized for the purpose of producing surplus products for sale, value addition and growth. These practices constitute “farming as a business' (or they transform a farm into a firm).

Other key characteristics of a firm may include;

• Consideration of production as an investment,
• Specialization in the production process,
• Return on every factor of production including the entrepreneur, and ultimately,
• Profit making as the key objective for production.

Environment of the Firm

In general, firms participate in two distinct markets. One from which they buy their inputs called a resource market or factor market. The other is in which they sell their produce called the product market or goods market.