Assignment 1: Production and Cost Analysis
In analyzing the production cost, the definition of this term should be known. Production cost is the price incurred in the production of a service or product. This production cost is a summation of both manual labor and the starting materials. Various objectives have been outlined to assist in the understanding and analysis of the production cost in the economic sector.
This study is aimed at identifying the relationship between the inputs and the law of diminishing marginal productivity, and analyzing the relationship between productivity and cost of production. The relationship between the law of marginal productivity and the number of input is a dependant one. The law states that for there to be maximum profit, there should be an interchange of profits in order to yield different products rather than increasing a constant input (Colander, 2010). The relationship between cost of production and productivity is linked since they are indicators of the trends in wage inflation. The relationship between these two factors is the variable cost that changes depending on the output changes on productivity and production cost (Colander, 2010). The objectives also included studying the effect of changes in the supply and demand of factors of production on the input prices and the impact of changes in marginal revenues and cost on a firm’s profit-making potential.
The topics that were easy to understand during the course of reading were calculation of cost of production, the law of diminishing marginal productivity and the long and short run production. There are topics that were quite difficult as I tried to comprehend the basics of production and cost. They included the analysis of the cost curves and differentiating the different cost curves and how they are co-related.
Thinking by the margin entails processing thoughts on the next course of action, and the benefits acquired (Colander, 2010). An example of marginal thinking is illustrated when a farmer decides to take one extra hour into weeding his farm that will in turn give him 12 more tomatoes. The action in this brief illustrates the one extra weeding hour as the next course of action that is beneficial to the farmer. This is termed as the marginal product of labor. Thinking on the average is having thoughts of the step to take at the precise moment, as long as there are benefits. These two types of thinking differ since one foresees the benefits of the next action while the other is fixed on the situation at that particular time.
The introduction of technological innovation has lead to the overall increase in the productivity levels (Colander, 2010). These innovations are wide, ranging from energy to communication and transportation. An example of this technological innovation is the advancement in production of industrial machinery. There has been assembly of more advanced machines that assist in accomplishing manufacturing tasks. These machines are automated, require minimal human control and highly efficient in carrying out responsibilities. This has caused a drastic upgrade in productivity as more products and services are created (Colander, 2010).
Derived demand is
the occurrence of demand in a feature that results from the increased demand of
the final service or product (Colander, 2010). Demand for labor is derived from
the need to increase production of the manufactured goods or services. The correlation
between output and the wages earned by the employees is directly proportional.
The logic supporting this relationship is that an increased demand for a good
or service implies that there is increased wages due to increased input to meet
the demand; the increased input in turn implies increased productivity
(Colander, 2010). This relationship is illustrated by Ford Company. After his
success in relocating his assembly line, he announced an increased wage of $5
per day to the automobile workers along with reduced working hours that ranged
from eight to nine hours. By developing a nine-hour shift per day and an increment
in wages, three shifts were run instead the previous two thus increasing the
overall productivity of the company.
Colander, D. C. (2010). Economics. Boston: McGraw-Hill/Irwin.