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

Break-even quantity., Bikes-for-two, Inc., produces tandem bicycles. Its co...

Bikes-for-two, Inc., produces tandem bicycles. Its costs have been analyzed as follows: VARIABLE COST Materials $30/unit Manufacturing labor 3 hours/unit ($8/hour) Assembly labor 1

Economies and diseconomies of scale, Economies and diseconomies of scale ar...

Economies and diseconomies of scale are of two types- external andinternal. Internal economies and diseconomies are those which a firm reaps as a result of its own expansion. Conve

Interest and the keynesian liquidity preference theory, Interest and the Ke...

Interest and the Keynesian Liquidity Preference Theory Interest is a factor income in that it is considered to be payment to or return on capital in the sense that it is payme

Explain what is meant by price discrimination, Problem 1: a) Explain wh...

Problem 1: a) Explain what is meant by ‘price discrimination' and what are the different types of price discrimination. b) Under what conditions is it possible and profitabl

Explain about the marginal analysis, Explain about the marginal analysis. ...

Explain about the marginal analysis. The optimal quantity of an activity is the level which produces the maximum probable total net gain. The principle of marginal analysis

Explain the no new substitutes for the commodity, No new substitutes for th...

No new substitutes for the commodity If some new substitutes for a commodity appear in the market, its demand normally declines. This is quite natural, since with the availabil

State the types of demand elasticity, State the types of demand elasticity ...

State the types of demand elasticity Income Elasticity: Elasticity of demand with respect to change in consumer's income. Price Expectation Elasticity of Demand: Elast

Distinguish between positive and negative externalities, Question 1: 1 ...

Question 1: 1 Explain the importance of barriers to entry in the control of Monopoly rents. 2 Discuss the extent to which competition leads to market promotion? Questi

Factors influencing demand for a product, Factors influencing demand for a ...

Factors influencing demand for a product These are broadly divided into factors determining household demand and factors affecting market demand . Factors affecting hou

Indirect taxes, INDIRECT TAXES These are imposed on an individual most...

INDIRECT TAXES These are imposed on an individual mostly producers or traders but they can be passed on to be borne by others usually the final consumers.  They can also be de

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