To become technical efficient a company must maximize output. This maximization includes tacking advantage of different variables to include technology. For a company to become economically efficient the output should be at the lowest cost. The lowest cost has many factors or variables. These variables can be fixed or ever changing.
There are two time frames most managers use when making any decisions. Those two time frames are short run and long run. Short run decision a manager’s inputs are fixed in quantity. An example is a fixed amount of equipment where a manager may want to increase output. Long-run decision is similar to short-run however, the input can change. Using the above example, a long-run decision could change the equipment, add equipment, or enhance production in other ways. The ultimate goal for these managers is to use planning tools to increase production. Production is creating goods or services from inputs or resources.
The chapter discuss how manipulating certain inputs can give the manager a tool to attempt to increase production. Information such as the average product of labor, which can help determining how many workers are needed when creating products can be very beneficial when attempting to increase production. One example of useful information is if a graph shows a diminishing marginal product. If this is displayed for instance, adding addition workers will more than likely not have the profit margin which is desired.
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...step when estimating production functions.
Just like the previous chapters there is a long-run production and short-run production. Long-run productions have all inputs can be variable. In short-run production at least one input must be fixed.
Most managers will utilize a time-series set of observations on cost, output and input prices for cost estimation. There is an equation which can be utilized to eliminate inflation on cost data. Data collection is always difficult due to numerous unknown variables. Items such as opportunity cost of labor may not be readily available.
There are many tools available to calculate items as long-run total, average, and marginal cost from the firm’s expansion path. As a manager knowing the exact equation is not always important, however to be effective a manager must know and understand what the results of such findings mean.
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