An efficient allocation of resources is always attempted to be achieved. Whether it be by a household or a firm, both attempt to maximise the welfare benefits they receive from using the resources they have available to them. Production and cost theory enable firms to have a clearer picture of how their resources can be allocated, and therefore they are essential to an efficient allocation of resources. The production theory mainly focuses on the relationship between the inputs that a company will inject into the production process, and the outputs that will come out of it. Firms always look at decisions in at least two different time frames: the short run and the long run. In the short run firms have at least one fixed factor of production. …show more content…
These occur only in the long-run, and allow for a firm to know whether it would improve efficiency for them to increase input levels. Economies and diseconomies of scale occur due to the idea of increasing and decreasing returns to scale. Economies of scale are reasons as to why an increased inputs will lead to a more than proportional increase in outputs. External economies of scale are those which occur due to the benefits of being in a market (eg.if logistics links are improving due to a concentrated geographical market, then this is an external economy of scale) while internal economies of scale occur due to an increase in an individual firm 's size (eg.if two firms merge and therefore they have better specialized managers for individual departments, then this is called a managerial economy of scale). Diseconomies of scale, on the other hand, occur due to communications issues (eg.if a company has a decentralized management, it may not be able to control average costs from rising). Due to the concept of economies and diseconomies of scale, firms are able to better gauge whether they can efficiently grow so that they are achieving growth targets while also keeping costs at a level of productive efficiency. Using cost theory means that firms can predict the effect that changes in their inputs will have on their
The effectiveness of the production control system helps to improve the quality of the company’s product while still reducing the costs. The company is constantly looking for ways to increase the effectiveness of their production. They want to ensure that the product is at the quality they expect and always are looking to improve the quality of the product. Reduction of costs is another factor they consider, but the company refuses to produce a product that is not the quality they expect no matter what the cost savings are.
It took a little bit to fully understand these but it made a lot of sense once I figured them out. The flow of products throughout the plant is very important. It doesn’t make sense for one machine to be making products faster than the next one can handle because it’ll all build up and cause problems. Also, the three terms throughput, inventory, and operational expense really help to simplify everything in a plant. Simplicity makes managing a plant easier, allowing the manager to do a better job at what he does.
Anyone can see that over the past number of years, college tuition and overall costs to attend a university have skyrocketed and is at an all-time high. Although, most people are not too sure why this has happened. According to authors Robert B. Archibald and David H. Feldman in the article, “Explaining Increases in Higher Education Costs,” there are two opposing arguments as to why this has occurred over the years. These include the Cost Disease argument, which was William Baumol and William Bowen’s view of the rising cost of education and the other was the Revenue Theory of Costs, which was Howard Bowen’s view of the topic. There are multiple goals throughout this article. A couple of the goals include explaining the two competing arguments
In the same manner, one tries to economize with their time resources. They must be so distributed as to give an equal yield in all sects of use. Otherwise, it would pay t...
Total revenue, which is the total amount of income received from the sales of a certain quantity of goods or services. Total revenue can be calculated by multiplying the price of a product times the quantity sold. For instance, if 160 baseball caps are sold and each baseball cap was priced at $5 each, the total revenue would be (160*5) $180.
The concept of perfect market allocation of resources was in W. Baumol's (1988,631), view largly theroretical. Baumol believed that economic models relied upon the concept of the invisible hand first discussed by Adam Smith. In these models, the perfectly competetive economy was able to allocate resources efficiently, without the need for market intervention by outside agents, including governments. However, there were significant weaknesses in these models particuarly in the area of ensuring equity of acess, social objectives and in the provision of public goods.
Perhaps one of the most fundamental principles of Microeconomics is that people face tradeoffs. According to Mankiw, “making decisions requires trading of one goal against another.” This situation of facing tradeoffs stems from the concept of scarcity - which in essence is limited resources - forcing one to make decisions and tradeoffs between several options. A concept well associated with this is opportunity cost - which is defined as how much one has to give up (the cost) in order to get the good or service (generally the alternative desired or wanted). Opportunity cost is also commonly defined as “the value of the next best alternative in a decision.” This concept of opportunity cost may be difficult to grasp as a bare definition but applying it to a situation may simplify and clarify the concept allowing a more universal understanding of it. To better our understanding of this concept, let us analyze the following scenario and assess the opportunity cost associated with it.
Every company has some kind of Revenue and they all have costs that are associated with running the company. It is also true that if a company wants to increase their Revenue, their costs will increase too. It is every company’s goal to maximize revenue and either through Production or Services, and minimize cost. These things are easy to figure out, but actually identifying the production and figuring out how it will increase or decrease with change is very difficult.
Accurately forecasting the cost of projects is vital to the survival of any business or organization. Cost estimators develop the cost information that business owners or managers, professional design team members, and construction contractors need to make budgetary and feasibility determinations. From an Owner's perspective the cost estimate may be used to determine the project scope or whether the project should proceed. According to the U.S. Department of Labor there were about 198,000 cost estimators in 1994. That of which 58% work in the construction industry, 17% employed in manufacturing industries, and the remaining 25% elsewhere. From this we could conclude that a great deal of cost estimation lies in the construction industry, where multi-million dollar contracts are formed after a thorough cost estimation.
A production Function in general, without specifying what kind, is related to the output of a production process which starts which starts with the factors of production. The production functions are an integral part for explaining marginal products as well as allocative efficiency. There are different classifications for production functions, and what constitutes them, determined by the type of production. This article of the WIKI aims to focus on the Substitional production function, explaining what it is and means, as well as the limitational, doing the same. (1)
Cost accounting system has two types, job order costing, and process cost system. These two cost systems are very different, almost every company uses order costing or process costing. Starbucks, is a coffee shop where citizens congregate to drink there morning coffee, study, and or socialize. Starbucks is one of the oldest and largest privately held specialty coffee retailer in the United States. (Starbucks) Their passion is to discover the flavors you love and always bring it home, delivering the look, taste and aroma of the world’s best coffee and teas. Job order costing is a very easy way in order to help Starbucks managers to know how much profit their company (Starbucks) made.
Economies of scale are a barrier to entry that affects the market in which my business operates as well. Moreover, I see economies of scale as a barrier because when many event planning businesses start out they are not able to fully produce goods and services on a larger scale right then and there without incurring many large costs. However, when they have been around for a while and have gained substantial amounts of business then they essentially are able to produce more of their goods/services on a larger scale with less input costs, therefore, economies of scale are said to be reached. So,
Microeconomics is the study of an individual economy, or of the different segments within the larger economy, while macroeconomics is the study of aggregate economic behavior, or the economy as a whole (Madura 103). The main goal of macroeconomics is to determine the impact of consumer spending on total output, employment, and prices. To fully understand economics as a whole, we must understand that there are limitations set by the available resources that are used to produce goods and services. These resources that are used in the manufacture of goods and services are called factors of production. Land, labor, capital, and entrepreneurship.
Economies of scale are the advantages that accrue as organizations become bigger and expand their activities. The firm that I chose is McDonalds. It is one of the world’s largest fast food restaurant chains. McDonald’s economies of scale allow for bulk purchase of products, faster growth, specialized management, and franchise support. Additionally, profits received and significant cost savings are a big part of McDonald 's economies of scale.
In management accounting, cost management has a crucial role and finds its foundations in understanding “cost behaviour”. “Cost behaviour analysis” can be defined as “the study of how cost changes when there is a change in an organisation’s level of activity”. (Definition https://www.accountingcoach.com/blog/what-is-cost-behavior).