Production and Cost Analysis
Rasheeda Arthur, Sarah Fischer, Tera Ginnaty, Mike May,
Shannon McMillan, Tiffany Sawyer, Tiffany Weiland
ECO/365 Version 4
September 16, 2013
John Ilokwu
Production and Cost Analysis
Colander (2010) explains analyzing production and cost, and provides insight into how the abilities of market economies effect the organization of a society. In week two, Team C learned evaluating production and cost within a firm is a complex study involving several key focus points. The team learned it is essential to understand the relationship between inputs and the law of diminishing marginal productivity. Another key point discussed in week two focused ...view middle of the document...
Production costs include a combination of direct and indirect costs, such as employee wages and benefits, raw materials, rent, and utilities expense. Productivity is an economic measure of output, per unit of input, and refers to how technically and economically efficient a firm or industry produces a good or service - or more simply, maximizes the impact of inputs to outputs. Inputs include labor and capital (cost of production), whereas output is measured in revenues and other GDP components such as business inventories. Investopedia states, “Productivity measures may be examined collectively (across the whole economy) or viewed industry by industry to examine trends in labor growth, wage levels and technological improvement” (Investopedia US).
Price of Inputs
Team C learned about analyzing the effect on changes in the supply of, and demand for, factors of production on the price of inputs. After reading the chapter, Team C discovered the entrepreneur is the organizer of production, the one who visualizes and convinces the individuals who own the factors of production will to produce (Colander, 2010). An increase in demand will show an increase in production. The transition from cost to supply is assisted by the help of the entrepreneur. The entrepreneur could sell a product for more than the average cost of producing it. According to the text, supply is the key to the market’s ability to provide the goods people want (Colander, 2010). In the short run of average cost curve, the inputs are static. In the future, average cost curve will vary.
Marginal Revenue and Cost
Marginal revenue is the change in revenue per change in quantity ("Marginal revenue...