Nobody downloaded yet

Production and Cost Relationships - Essay Example

Comments (0) Cite this document
Summary to essay on topic "Production and Cost Relationships"
This paper explores the relationship between costs in production. Utilizing numerical example and graphical representations, this paper provides a simplistic view of different costs incurred by a firm. In more detail, this paper first turns in identifying the major goal of a firm-that is profit maximization and offers solution in term of cost minimization…
Download full paper
Production and Cost Relationships
Read TextPreview

Extract of essay "Production and Cost Relationships"

Download file "Production and Cost Relationships" to see previous pages... Profit is measured as the difference between the revenue generated deducted with the costs incurred. Thus, in order to maximize profits, the company could either ensure that it is generating the highest revenue possible by increasing price and quantity demanded or minimize the costs that it incurs (Pindyck and Rubinfeld 2005).
Let us write or edit the essay on your topic "Production and Cost Relationships" with a personal 20% discount.. Try it now
This paper will focus on the latter. The following chapters will look at the relationship of average cost, marginal cost, and marginal product in the aim of helping a business organization attain its goal of profit maximization.
In the course of its operation, a business organization incurs various costs in order to ensure that products are designed, manufactured, and distributed to customers (Cepeda 2005). In order to understand average total cost, it is best to have a comprehension of what comprises the total cost that a business organization faces. In general, the company is faced with two different costs which make up its total cost namely fixed cost and variable cost (Brue and McConnell 2005). Fixed cost, as the name implies is fixed and does not vary with the level of production. An example of fixed cost is the payment for rent of production plant or retailing store. On the other hand, variable costs are those costs which changes when the quantity of production is changed (Cepeda 2005). Examples of these are the cost of materials and labor which are needed in the production of one unit of a product. The sum of the total fixed cost and the total variable cost is the total cost. Dividing the total cost with the number of quantity produced by the business organization will yield the average total cost (Brue and McConnell 2005).
Table 1. Numerical Example for Average Total Cost
Quantity
Total Fixed Cost
Total Variable Cost
Total Cost
Average Total Cost
50
$600
$1250
$1850
$37
100
$600
$2500
$3100
$31
150
$600
$3750
$4350
$29
200
$600
$5000
$5600
$28
250
$600
$6250
$6850
$27.4
300
$600
$7500
$8100
$27

In order to illustrate fixed cost, it is best to come up with a numerical example. Suppose that a company manufactures figurines and incurs fixed cost as follows in a month: $200 for building rent; $300 for administrative expense; and $100 for utilities. On the hand, it incurs the following variable cost per unit: $10 direct material and $15 direct labor. The company's production capacity is 300 units per month. Table 1 shows the company's variable cost and fixed cost at each level of quantity produced. On the other hand, Figure 1 shows the short run average total cost curve. It should be noted that as the quantity produced is increased, ATC declines because of economies of scale, managerial specialization, and use of more efficient labor.
Figure 1. ATC Curve in the Short-run

However, in the long run, ATC curve will begin to inflect because of the diseconomies of scale as production expands further (Pindyck and Rubinfeld 2005). Thus, the long run ATC curve will tend to slope downward at first and begin to ...Download file "Production and Cost Relationships" to see next pagesRead More
Cite this document "Production and Cost Relationships"
  • APA
  • MLA
  • CHICAGO
(“Production and Cost Relationships Essay Example | Topics and Well Written Essays - 1500 words”, n.d.)
Production and Cost Relationships Essay Example | Topics and Well Written Essays - 1500 words. Retrieved from https://studentshare.org/miscellaneous/1522855-production-and-cost-relationships
(Production and Cost Relationships Essay Example | Topics and Well Written Essays - 1500 Words)
Production and Cost Relationships Essay Example | Topics and Well Written Essays - 1500 Words. https://studentshare.org/miscellaneous/1522855-production-and-cost-relationships.
“Production and Cost Relationships Essay Example | Topics and Well Written Essays - 1500 Words”, n.d. https://studentshare.org/miscellaneous/1522855-production-and-cost-relationships.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document
CHECK THESE SAMPLES - THEY ALSO FIT YOUR TOPIC "Production and Cost Relationships"
Elasticity / Production and Cost
It will be interesting to see the recent history of gasoline prices in the state of California. Picking 6 year price chart of gasoline along with price movement of crude oil which is a basic raw material for producing gasoline, some interesting observations can be made.
3 Pages(750 words)Essay
Business Relationships
Plus, business relationships include Customer Relationship Strategy. And, buyer-Supplier Negotiation. The following paragraphs will explain business relationships in terms of cooperation and competition in detail. All business relationships are complicated.
10 Pages(2500 words)Essay
Constrains of Production Cost and Ethical Industrial Relation Management
Smith's view is based on the behavior of a typical trader who would drive a hard bargain for the end of profit. The ethical dimension of man's life is remote from his vision. He wrote in his Wealth of Nations: It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.
3 Pages(750 words)Essay
Managerial Economics - Production
The output can also be a service rather than a good. To be noted is that " production " refers to all of the activities involve in the production of goods and services, from borrowing to set up or expand production facilities, to hiring workers, purchasing raw materials, running quality control, cost accounting and so on, rather than referring merely to the physical transformation of inputs into outputs of goods and services.
4 Pages(1000 words)Essay
Production Management
To achieve this companies are constantly working towards improving production levels and quality by speeding processes involved in production and as well as consciously targeting costs.In this milieu an incresing numer of companies are getting to recognize the fact that they cannot excel in everything connected to their business and delivery of products and services they are known in the market for.They have begun recognizing that it makes sense to find sub-contractors for parts of their work and leverage on their work to roll out a finally bundled up product.Outsourcing of manufacturing can help companies concentrate of areas of competence whilst a the same time ensuring that the other rel
21 Pages(5250 words)Essay
Automobile production chain
What is common is to see a product designed somewhere in California, several of its materials manufactured in China, Korea, The Philippines, and Mexico, and then assembled somewhere in Europe. There is no other production process in the world more affected by globalization than the automobile production process.
3 Pages(750 words)Essay
Building Supply Chain Relationships
These two characteristics differ in the point that mostly short-term relationships are the kind that was employed in GM, Microsoft, Hollywood motion picture industry and the Hong Kong container terminals.
5 Pages(1250 words)Essay
PRODUCTION AND COST
International trade has grown over recent years in dramatic ways. This is particularly evident in how goods, services, and capital flow freely – in full or in part – across borders. As advances in communication
6 Pages(1500 words)Term Paper
Production and Cost
Inventories take a greater component in the statement of financial position hence deemed fundamental in the financial perspective. Manufacturing a suitable quality and quantity at the appropriate time that satisfies customer needs is a fitting inventory production. Satisfying customer needs is achieved by meticulously designing products.
3 Pages(750 words)Term Paper
RELATIONSHIPS
I have not often referred to Bruno as a dog and many times I have taken offense when he was referred to as an animal. My close affection for Bruno is probably because he was
1 Pages(250 words)Essay
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 Production and Cost Relationships for FREE!
Contact us:
+16312120006
Contact Us Now
FREE Mobile Apps:
  • About StudentShare
  • Testimonials
  • FAQ
  • Blog
  • Free Essays
  • New Essays
  • Essays
  • Miscellaneous
  • The Newest Essay Topics
  • Index samples by all dates
Join us:
Contact Us