Production cost refers to the total expenses incurred in the manufacturing of goods or services. This includes costs such as raw materials, labor, and overhead expenses like utilities and rent. Understanding production costs is essential for businesses to set prices and ensure profitability. By analyzing production costs, companies can identify areas for improvement and efficiency. Reducing these costs can lead to higher profit margins, allowing businesses to invest in growth or offer competitive pricing. Effective management of production costs is crucial for the sustainability of any business in the market.