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Microeconomics Essay

2273 words - 10 pages

ID NO: 08JBT021

According to David N Hyman, (1989), production is the process of using economic resources or inputs in order to produce output. The transformation of raw materials into finished goods or services has been a major factor in any economy as this is the major attributes that has help build today’s economy since the beginning of most economies worldwide.
Production on its own is insignificant as there are several factors to consider when producing the end ...view middle of the document...

B. Scarcity
Scarcity is a concept that describes a situation where there is not enough commodity to meet everybody’s wants and needs. (Peter Muhia, 15th May, 2012). In cases such as production of goods, the lack of enough raw material for production of their finished good, leads them to limit their production capacity to a certain amount. They do so in order to minimize purchase cost in order to enhance profitability and also not to run out of production material necessary for production.
Scarcity of products also helps firms regulate their output. The regulation of output enables them to maximize on consumer purchase power and at the same time ensure the products availability to market at a controlled rated. Though scarcity may seem null and void to the service industry, it also affects them in more ways than one. If a service is expensive, the consumers will opt to take the cheaper option from another firm, hence leading to scarcity of consumer.
The service industry usually have to keep their prices at the same level as competing firms since they are competing for the same number of consumers who are scarce and tend to be drawn to the cheaper option.
C. Technology
According to David N, (1989), technology allows us to delay the sacrifice implied by scarce resources by increasing productivity of resources. Technology has revolutionized the production of goods and services. Technology is constantly improving; this is a major boost as it also improves the goods and services being offered.
Technology has over the years been incorporated in firms to improve their production. So far it has enabled mass production of the scarce resources available. This has also led to a sizable increase in profits. It has also led to better management of the firm’s capital and other resources such as labor and distribution.
Though technology has led to improved production, it also comes with a cost as a firm has conceder maintenance cost and upgrading in order to stay ahead of the competition.

D. Cost of Production
According to Robert S. and Daniel L, (2000), cost includes the wages a firm pays its workers and the rent it pays for the office space (but is not necessary if the firm already owns the building). Part of this cost of production includes also purchase of equipment, purchase of raw material, transportation and more.
The cost that a firm attains during its production process will affect the profits, the firms pricing of its products, payment of wages, its acquisition of raw materials and more. The cost of production is a determining factor on how a firm plans its finances in order to ensure maximization of its resources without having to depleting them.
E. Opportunity cost
Opportunity cost is the cost associated with opportunities that are forgone by not putting the firm’s resources to their heist – value use. (Robert S. and Daniel L, 2000). A firm optimizes on its resources which were did not occur any cost, such as lack of renting...

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