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

expected profit, The Learned Book Company has a choice of publishing one o...

The Learned Book Company has a choice of publishing one of two books o the subject of Greek mythology.  It expects the sales period for each to be extremely short, and it estimates

Show the example on transaction cost theory, Q. Show the example on transac...

Q. Show the example on transaction cost theory? Coase begins from standpoint that markets could in theory carry out all production and that what needs to be illustrated is th

Compensatory financing, Compensatory Financing Two other schemes for a...

Compensatory Financing Two other schemes for alleviating the effects of commodity trade instability have been operating for a number of years.  These are the IMF's Compensator

Dominant strategy, In a one-shot game, if you advertise and your rival adve...

In a one-shot game, if you advertise and your rival advertises, you will each earn RM5 million in profits.  If neither of you advertises, your rival will make RM4 million and you w

determine the wage rate , Northern Lumber operates a large lumber-processi...

Northern Lumber operates a large lumber-processing mill in a small town in Washington State.  It is one of the larger lumber producers in the region and has some market power in th

Electron Control, Electron Control, Inc., sells voltage regulators to other...

Electron Control, Inc., sells voltage regulators to other manufacturers, who then customize and distribute the products to quality assurance labs for their sensitive test equipment

Economics, What limitations are inherent in the economist’s view of pricing...

What limitations are inherent in the economist’s view of pricing?

Structure, structure of managerial economics

structure of managerial economics

What is the equilibrium in the labor market, What is the equilibrium in the...

What is the equilibrium in the labor market? Explain briefly. Equilibrium in the Labor Market a. The market labor of demand curve is the horizontal total of the individual l

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