Total cost of factor combinations, Managerial Economics

Assignment Help:

Q. Total cost of Factor Combinations?

Here we try to find total cost of every factor combination and choose the one that has the least cost. Cost of every factor combination is found by multiplying the price of each factor by its quantity and then summing it for all inputs. This is explained in Table below.

Table: Choosing the Lowest Cost of Production Technique

Technique

Capital

(units)

Labour

(units)

Capital Cost

Rs.

Labour Cost

Rs.

Total Cost

Rs.

1

2

3

4

5

6

A

6

10

500*6=3000

400*10=4000

7000

B

2

14

500*2=1000

400*14=5600

6600

It is presumed that 100 pairs of shoes are produced per week and price of capital and wage of labour are 500$ and 400$ per week respectively. In order to make analysis, we presume that there are only two technically efficient methods of producing shoes and they are labelled A and B.

The table illustrates that total cost of producing 100 pairs of shoes is7000$ per week by using technique A and 6600$ per week using technique B. Firm will choose technique B that is an economically efficient (or lowest cost) production technique at the factor prices presumed in the above illustration.

If either of the factor prices alters equilibrium proportion of the factors would also change so as to use less of those factors which display a price rise. Consequently we will have a new optimal combination of factors. This can again be found out by calculating cost of different factor combinations with new factor prices and choosing the one which costs the least.


Related Discussions:- Total cost of factor combinations

Mankiw model of nominal rigidities, Mankiw Model of Nominal Rigidities   ...

Mankiw Model of Nominal Rigidities   There are two related reasons for which  firms do not  frequently change prices. First, as we saw in the discussion on menu costs, the cost

Marris managerial enterprise model, Why do the managers in marris model max...

Why do the managers in marris model maximise their satisfaction by choosing a higher growth rate and a lower valuation ratio when compared to the profit maximisation

Shift in the supply curve, Shifts in the supply curve Shifts in the su...

Shifts in the supply curve Shifts in the supply curve are brought about by changes in factors other than the price of the commodity. A shift in supply is indicated by an entir

Estimate the demand function, You're standing at three light switches at th...

You're standing at three light switches at the bottom of stairs to the attic. Each one corresponds to one of three lights in the attic, but you cannot see the lights from where you

Compettitive market, Tomato Farm is selling tomatoes in a purely competitiv...

Tomato Farm is selling tomatoes in a purely competitive market. Its output is 5000 bushels, which sell for $15 a bushel. At this level of output, the marginal cost is $15 bushel an

Calculate the optimal lifetime incomes and firms, Dan and Ann are chemical ...

Dan and Ann are chemical engineers working for a biotech company. Each of them would like to be promoted to a managerial position, but only one of them can get the job. Their super

Business, How can a firm''s security policies contribute and relate to the ...

How can a firm''s security policies contribute and relate to the six main business objectives.give example

Show the uses of income elasticity, Q. Show the uses of income elasticity? ...

Q. Show the uses of income elasticity? A few significant uses of income elasticity are as follows: First, concept of income elasticity can be used to approximately compute t

Type of economic system, Question 1: (a) Briefly explain and distingui...

Question 1: (a) Briefly explain and distinguish between a centrally planned, laissez-faire and mixed economy. (b) According to you, which kind of economic system is most d

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd