"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 same good or service from above. Identify the fixed and variables costs are for the good or service. Based upon the costs identified, recommend whether to produce or not produce the good or service. Provide a rationale with your response.
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The good I have picked is an orange peeling machine. The price is $3,000. The fixed cost is $1,000 and the variable cost is $1,500. The cost function for orange peeling machines is Fixed + Variable = Total Costs, or $1,000 + $1,500 = $2,500. Price plays an important role in the short run and long run decisions. If the price is higher than the total costs, the company will continue its production in the long run. It may increase its capacity in the long run.
However, in the short run even if the price is ...
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