StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

Supply: Production, Costs, and Profits - Essay Example

Comments (0) Cite this document
Summary
Title: Supply - Production, Costs, and Profits Name: Professor: Institution: Course: Date: 1. Give a brief summary of economic costs. Economic costs can be defined as the sacrifice of performing an activity, following a course of action or a certain decision…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER94.9% of users find it useful
Supply: Production, Costs, and Profits
Read TextPreview

Extract of sample "Supply: Production, Costs, and Profits"

Download file to see previous pages Constituents of Economic Costs Total Cost (TC): This is the sum of fixed cost and variable cost. Therefore; TC = FC + VC Fixed Costs (FC): These are costs associated with acquisition of fixed assets. They do not increase or reduce with the level of production. These include cost of purchasing land and machinery necessary for production to take place. Fixed cost is also referred to as total fixed cost (TFC) Variable Costs (TVC): These are costs which increase or decrease with the level of production. These costs include costs of raw materials, wages and electricity costs and fuel costs among others. Average cost (AC): Average cost is also referred to as average fixed cost. It is calculated by dividing total cost with quantity of output, that is, TC/q where q is the quantity of output. Average cost can also be divided into two; average fixed cost and average variable cost. Average fixed cost (AFC) is calculated by dividing fixed cost by quantity of output. AFC reduces with increase in quantity of output. Average variable cost (AVC) is derived from dividing variable cost with quantity of output. Average variable cost is depicted in a U-shaped curve. It has the same shape with the average cost curve but lies below the AC curve. Marginal Cost (MC): This is the cost of producing an additional unit of output. It is the change in total cost as a result of an increase in production by one unit. Its curve is also U-shaped. Marginal cost reduces with increase in production up to a point of cost minimization where an increase in production leads to an increase in MC (Boyes & Melvin, 2011). 2. Suppose a firm is operating at the minimum point of its short-run average total cost curve, so that marginal cost equals average total cost. Under what circumstances would it choose to alter the size of its plant? Explain. A firm operating at the minimum point of its short-run average total cost curve, so that marginal cost equals average total cost, is at the points of tangency between the short-run average total cost curve and the long-run average total cost curve. These points can be seen in the diagram in red. Figure 1: SRATC’s and the LRATC (Source: Freeeconhelp.com) The long-run average total cost curve is demarked by the lowest points of every possible short-run average total cost curve (SRATC). In the above diagram, the long-run average total cost curve is labeled as LRATC. When a firm is producing at the lowest level of SRATC1, the firm can only increase its plant size in order to increase its profitability. Increase in the plant size occurs in the long run. The firm should continue to increase its plant size up the point which it will be operating at the lowest level SRATC2. This is also the lowest point the LRATC. The firm will therefore be operating at constant returns to scale. Constant returns to scale takes place when an equal percentage increase in all the factors of production leads to an equal percentage increase in output. Any level of production of output below the point of constant returns to scale occurs at economies of scale. Economies of scale take place when an equal percentage increase in all the factors of production leads to a greater percentage increase in output. When a firm is at this level, being bigger (increasing plant size) leads to higher efficiency and thus reduction in cost. The firm should continue to increase its plant size up to the point where it attains constant returns to scale. If the firm increases its plant size above the level at ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Supply: Production, Costs, and Profits Essay Example | Topics and Well Written Essays - 1000 words”, n.d.)
Retrieved from https://studentshare.org/macro-microeconomics/1471618-supply-production-costs-and-profits
(Supply: Production, Costs, and Profits Essay Example | Topics and Well Written Essays - 1000 Words)
https://studentshare.org/macro-microeconomics/1471618-supply-production-costs-and-profits.
“Supply: Production, Costs, and Profits Essay Example | Topics and Well Written Essays - 1000 Words”, n.d. https://studentshare.org/macro-microeconomics/1471618-supply-production-costs-and-profits.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Supply: Production, Costs, and Profits

Decision Making For Management - Linearity of Variable Costs within the Relevant Range

Keeping aside the fixed costs which have to be borne irrespective of the sales revenue, the remaining costs which are directly proportional to units sold can be minimized to manage cash flows in a better way. They can cut on their variable costs by having a look at the contribution margins of their company and their products.

The contribution of sales to before-tax profits, or gross profits, over and above the break-even is exactly the contribution margin as there are no fixed costs any more. The amount after the deduction of variable costs from the revenues will be added to the profits.

CVP graphs help the manager and the reader to have a better figure of the relationship between the profits, sales and volum...
7 Pages(1750 words)Assignment

Strategic Opportunities for E-commerce Enabled Supply Chains

Scaling the e-business in IT infrastructure is important because it reduces the cost and expenses to interact with the customers and suppliers. It also helps in maintaining and in management of the e-business. 

“As your environment begins to evolve, it is important to recognize the value of horizontally scaling your platforms and applications to support increased loads and service requirements. As the concurrency and complexity of your systems grow, the greater the need becomes to support policy-based routing, application and data caches, as well as load balancing hardware and software.” (Whitepaper; August 2001)

From very starting there was a need for those applications that can be used to c...
9 Pages(2250 words)Report

Marketing, Financial and Production Analysis of Vail Resorts

Finally, in 1966, the town of Vail was established. By 1985, George Gillett purchased Vail Associates and high-speed quad chairlifts were established to help the skiers get to higher elevations on the mountain. In 1992 Apollo Partners purchased Vail Associates, which in turn became Vail Resorts Inc., which was followed by the acquisition of ski resorts Keystone and Breckenridge. The acquisition of these ski resorts was a major change that helped Vail succeed in the long run by appealing to a broader market. Both Keystone and Breckenridge have lower prices than Vail Mountain and attract more single- and college-aged customers (Vail Resorts).

The company then added the Real Estate segment which comprised 6 percent of the...
9 Pages(2250 words)Case Study

Costs, Benefits and Risks of MerloniS Current Distribution System

Each supply-chain risk to forecasts, information systems, intellectual property, procurement, inventory, and capacity has its own drivers and effective mitigation strategies. To avoid lost sales, increased costs or both, managers need to tailor proven risk-reduction strategies to their organizations.” (Sodhi)

Distribution systems play an important role in the overall functioning of the supply chain management system of an organization. Any good distribution system requires that all the associated activities are coordinated in such a way that they facilitate the whole flow of organizational resources from one point to another. This is important because of the fact that a swift and smooth flow of organizational reso...
10 Pages(2500 words)Case Study

Global Warming and Food Production

The carbon fertilization effect of increased carbon dioxide concentration in the atmosphere has an impact on plant growth, which benefits plant growth by facilitating photosynthesis, cannot balance the complex impact of increased temperatures around the world. Thus, although some regions will benefit from global warming, a total reduction in global agricultural production will result. This essay presents a discussion about the impact of global warming on agriculture and food production around the world.
Although the history of the planet earth suggests that for the last million years ice ages have been interspersed with warmer periods, evidence suggests that the average rate of global warming within the recent past has accele...
14 Pages(3500 words)Assignment

American Airlines: Supply Chain Nightmare

For this reason, it is necessary that all business sectors are carefully reviewed – as often as possible – for the appropriateness of their structure and their daily needs; managers may fail to evaluate with accuracy their firm’s needs, a fact that can cause the failure of plans applied on the relevant organization (Hardless, 2005). On the other hand, the needs of various organizational departments are different; the methods used for the improvement of a firm’s activities should be flexible taking into consideration the characteristics of the specific organizational sector, its strengths/ weaknesses but also its role in the development of the firm’s activities. Boeing is a firm with a long presence in...
15 Pages(3750 words)Case Study

Production of Lustre Painted Ceramics During the Fatimid Period

Glazed ceramics represent a very small percentage of the total ceramic production during the medieval Muslim world. The majority of domestic earthenware comprised unglazed storage and transport jars for items such as grain, oil and water, and unglazed bowls, platters and receptacles, which were made for the kitchens, pharmacy or the market shop. However, glazed and painted ceramics were highly sought commodities in urban as well as courtly settings2.

Medieval sources refer to pottery or ceramics as Khazar, fakhkhar, and chadar, and the generic term sini is used particularly for fine glazed ceramics. The term sini is derived from the Arabic word for China – al-Sin – since both potters and consumers of the med...
10 Pages(2500 words)Case Study

Relationship between Money Supply and Inflation in Saudi Arabia

Over the recent past, the effects of money supply, debt and inflation have become contentious issues for debate. Furthermore, frequent cautions concerning the risk of very large budgetary deficits aver that this would send up the upcoming state debt and capital rate as indicated by the rates (interests). As a nation, Saudi Arabia has a bi and enduring budgetary deficit over the past two decades and the government has been forced to go into the market so as to have loan access and to make up for the deficits. Given the impact of this on inflation and other economic variables, it's imperative and of great alarm for strategy architects (strategists) to understand how microeconomics has an effect on money supply, financial plan defici...
10 Pages(2500 words)Speech or Presentation

Impacts of Climate Change on Food Production over the Next 50 Years

..., whereby they are offering significant source of proteins. In fact, it has been realized that the fisheries are being overexploited due to the change in climate associated with pollution. References Darwin, R., (2000), Economic effects of CO2 fertilization of crops: transforming changes in yield into changes in supply, Environmental Modeling and Assessment 5 (3), 157–168. Grantham Research Institute & Clark, D., (2012), How will climate change affect food production? Guardian News and Media, Retrieved on December 4 2012 from production>  Parry, M., Rosenzweig, C., Iglesias, A., Livermore, M. & Fisher G., (2004), Effects of climate change on global food...
6 Pages(1500 words)Term Paper

Logistics and Supply Chain Strategy

Sustainability increases the mode of rail and sea freight and intermodal transport. The demand characteristics in some cases influence the choice of transport mode and even the need for safety stocks. The appropriate logistic strategy is essential for any organization as the manufacturing lead time is affected by the product characteristics and design. Globalization is a factor that causes longer lead times as a result of longer distances (Chan and Lee, 2005, p.78). The basis for any logistic strategy is the product. The product pricing is affected by the choice of transport mode. The production flow is smoothened with good demand predictability. Demand predictability is improved with the help of information technology through gre...
6 Pages(1500 words)Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Supply: Production, Costs, and Profits for FREE!

Contact Us