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Production is the act of creating output that is used and valued by consumers. Maintaining appropriate production levels are required in order to sustain a certain growth or decline. Overproduction or underproduction can be costly if these are misaligned. For example, if it is determined that the prosperity is shrinking, production capacity must be reduced to ensure profits are maintained. To maximize profits, production output must follow the microeconomic predictions.

Factors that affect production are mostly related to the consistent supply of raw materials for the production levels predicted in the economic model. In addition, in a manufacturing based environment, labour is an important factor in ensuring that production is maintained at the correct level.

The production possibility frontier (PPF) is when an economy is producing its goods and services and allocating resources in the most efficient way possible. The production possibility frontier displays the limits to production for an economy. In order for an economy to be efficient, a certain combination of goods and services must be produced. In the short run, production has a fixed input factor: capital. On the other hand, in the long run you can vary both input factors labour and capital. 

Some important concepts to know when discussing microeconomic production is the marginal product (MP), which is the change in total output created by adding an extra unit of labour, and average product (AP), which is the total output divided by the total units of labour employed.

Production & Labor Market

What economic principle justifies the high salaries of some professional athletes? Suppose the manager of a baseball team wants to hire a new pitcher for $4 million per year. Under what circumstances would it make sense for the team to do so? Assume that the government of the state of New Jersey has determined that a large nu

Opportunity Cost and Comparative Advantage

Relative production costs: Per pound of titanium per bushel of wheat US $10 $1 Russia 5,000 rubles 2,500 rubles The opportunity cost of an additional pound of titanium is: ???? in the US and

The Big Mac Index and the Undervalued Yuan

1. The big Mac index computed by the Economics has consistently found the U.S dollar to be undervalued against some currencies and overhauled against others. This findings seems to call for a rejection of the purchasing power parity theory. Explain why this index may not be a valued test of the theory. 2. Why would China want

A-1 Corporation Maximizing Profits

The A-1 Corporation supplies airplane manufacturers with preformed sheet metal panels that are used on the exterior of aircraft. Manufacturing these panels requires only five sheet metal-forming machines, which cost $500 each, and workers. These workers can be hired on an as-needed basis in the labor market at $9,000 each. Given

Economic profit, loss and shutdown

Assume that the cost data in the top table of the next column are for purely competitive producer: *TP= Total Product; *AFC= Average fixed Cost; *AVC= Average Variable Cost; *ATC= Average Total Cost; *MC= Marginal Cost TP AFC AVC ATC MC 0 1 $60.00 $45.00 $105.00 $45.00 2 $30.00 $42.50 $72.50 $40.00 3 $20.00 $40.00 $60.00 $35.00

Calculating average, variable and total costs of production

A firm's only variable input is labor. When 50 workers are used, the average product of labor is 50 , and the marginal product of the 50th worker is 75. The wage rate is $80, and the total cost of the fixed input is $500. a. Calculate the average variable cost with calculations. b. Calculate the Marginal cost with calculat

Calculating Incremental Revenue and Incremental COGS

Bob, the new Chief Marketing Officer at the XYZ company has proposed an expansion of the companies marketing efforts. He claims that an investment of $1,000,000 in marketing research this year, and following this with an increase in marketing expenditures of $250,000 a year will increase sales by 10% each year over the sales f

MACRS Evaluating Proposals

See attachment for data. Latest Motor Electronics (LME) is evaluating a proposal to create a new automated production process for a new product line. In the past year (year -1) $1 million has been spent researching this capability and it look promising. The proposal is to purchase machinery and install it this year (year

Calculate inputs, calculate labor, production functions

1. Could the isoquants corresponding to two different levels of output ever cross? Explain. 2. A firm uses the inputs of fertilizer, labor, and hothouses to produce roses. Suppose that when the quantity of labor and hothouses is fixed, the relationship between the quantity of fertilizer and the number of roses produced is giv

Reducing Production Cost In A Recession

As an employer who wants to reduce the production cost during the economic recession, he or she could choose to (1) lay off some workers without changing wages or (2) keep all workers but cut wages for all. Which method would you choose and why?

Production Economics and Cost Analysis

"Cost Analysis" : Production Economics & Cost Analysis - Pick a good or service. Distinguish between the short-run and the long-run production and cost function for that good or service. Discuss how price plays a role in short-run and the long-run decisions and how managers are likely to respond in each case. - Using the sam

Calculate the MPL, MPK and MRTS in the given case.

Specialty Steel has carefully measured production in its new plant to determine whether it is technically efficient in production. It has found that the production function of the firm is represented by the following equation Q = 20K^(1/2)L^(1/2) where Q is output level, K is capital and L is labor. The firm currently

Optimum Output Discussion

Honda uses flexible plans in the manufacturing of its cars. Discuss whether this method of production results in optimum output. You can access and cite some info from here: The Wall Street Journal, September 23, 2008, p. B1.

Initiating Continuos Production in a Chrysler Production Plant

In recent years, Chrysler Corporation initiated three-shift or nearly continuous (21-hours-per-day) production at a number of its plants. Explain why Chrysler's decision might have been prompted by movements in its wage costs or capital costs, or both. Why would Chrysler have instituted this production change for its most popula

Fixed proportion production function

Suppose that a firm's fixed proportion production function is given by Q = min(5k,10L) The firm's Total Cost (TC) function is given by TC = vK + wL, where v is the cost of K and w is the cost of L. v = 1 w = 3 TC = K + 3L a) Calculate the firm's long-run total, average and marginal functions. b) Suppose that K is

Cobb-Douglas Production Function

Hi, I am fairly new to economics with only a basic understand of the topic and because of this I am struggling to answer (and understand the explanation for the answer) a question about the Cobb Douglas production function. Q. Under what conditions does a Cobb-Douglas production function (q=AL^(alpha)K^(beta)) exhibit decr

Projected net cash flow after tax

The Doraville Machinery Company is planning to expand its current spindle product line. The required machinery would cost $520,000. it is estimated that at the end of year 10 that the machinery can be sold for $50,000. The machinery will be classified as a seven-year MACRS. The building that will house the new production facilit

Managerial economcs: a. What is the total product function for Dimex? The average product function? The marginal product function? b. Managers at Dimex can expect the marginal product of additional workers to fall beyond what level of labor employment? c. Dimex plan to employ 50 workers. Calculate total product, average product, and marginal product.

Dimex Fabrication Co., a small manufacturer of sheet-metal body body parts for a major US automaker, estimates its long-run production to be Q= -0.015625K3L3 + 10 K2 L2 where Q is the number of body parts producted daily, K is the number of sheet-, metal presses in its manufacturing plant, and L is the number of labor-hours

Average Total Cost

Kitchen Helper Company decides to produce and sell food blenders and is considering three different types of production facilities ("plants"). Plant A is a labor-intensive facility, employing relatively little specialized capital equipment. Plant B is a semi-automated facility that would employ less labor than A but would also h

Production and Cost Analysis in the Short Run

The following discussion based on Gabriel Kahn, "Made to Measure: Invisible Supplier Has Penney's Shirts All Buttoned Up, " Wall Street Journal, September 11, 2003, describes a new inventory system used by J.C. Penney: "In an industry where the goal is rapid turnaround of merchandise, J.C. Penney stores now hold almost no ext

Analyzing Returns to Scale of the Production Function

Consider the production function Q=100L^.5K^.4. Suppose L=1 and K=1 so that Q=100 a. If L is increased by 1 percent, that is to L=1.01 with capital unchanged, what is the resulting percentage increase in output? b. Describe the nature of returns to scale for this production function.

Determine the maximum profit.

Please help with the following solution regarding production and maximum provide. Provide step by step calculations in the completed solution. A firm produces two goods 1 and 2 and has the following cost function C = 10Q1 + Q1Q2 + 10Q2 Where Q1 and Q2 denote quantities of good 1 and 2. P1 and P2 denote the corresponding

Allocation of resources to optimize production of multiple products

If fibers had a higher marginal profit per unit input than gasoline, gallons of crude should be switched from gasoline production to fiber production. Here is concrete example. Suppose the functions are: Gasoline: G = 72MG - 1.5MG^2 Fiber: F = 80MG - 2MG^2 Here gasoline output is measured in thousands of gallons, fiber ou

Calculating NPV: casual surf printing

Calculating NPV With the growing popularity of casual surf printing, two recent MBA graduates decided to broaden this casual surf concept to encompass a "surf lifestyle for the home." With limited capital, they decided to focus on surrf print table and floor lamps to accent people's homes. They projected unit sales of these

Scarcity and Fundamental Economic Questions

How does the 3 Scarcity and the Fundamental Economic Questions apply to the franchise dunkin donuts? What should be produced? Using the economyâ??s scarce resources to produce one thing requires giving up another. Producing better education, for example, may require cutting back on other services, such as health care. A dec

Emphasize production and cost relationships.

1) Discuss on relationships between production and cost, highlighting the equivalence between diminishing marginal productivity and increasing marginal costs. Given a table of data representing a short-run production function (levels of the variable input and the associated total product), compute marginal and average products a