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Productivity and Cost

What is meant by productivity, cost, and firm demand for one production factor. Can you please explain?

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Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a certain product people are willing to buy at a certain price, and the relationship between price and quantity demanded is known as the demand relationship.

Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied into the market is known as the supply relationship. Price therefore, is a reflection of supply and demand.

The relationship between demand and supply underlie the forces behind the allocation of resources. In market-economy theories, demand and supply theory will allocate resources in the most efficient way possible.

The various factors of production are:
1. Material/Natural resources
2. labor
3. Capital
4. Entrepreneurship

Let us take labour as one production factor.

The labour market is an informal mechanism where demand for and supply of labour interact.
Demand for labour arises mainly from employers' need for workers to produce goods and services. Thus, the firms who sold goods and services in the unit on supply and demand now become the buyers in the labor market. Firms need workers to make products, design those products, package them, sell them, advertise for them, ship them, and distribute them, among other tasks. No worker will do this for free, and so firms must enter into the labor ...

Solution Summary

This solution explains the factor of production and its impact on cost.