The technology used to determine the capital to labour ratio. The more capital intensive is production the more important will be fixed costs relative to variable costs.
The technology used to determine the labour to output ratio. With given capital this changes as output increases. The more labour intensive is production the more important will be variable costs to fixed costs The changing labour to output ratio initially favours lower costs, but eventually increases costs when capital is over utilized.
To produce more output the firm may employ additional labour units to meet orders or get existing workers to work overtime. The latter will receive premium payments and the former may have to be paid higher wages to secure their services.
Economies of scope occur when products share common inputs and diversification leads to cost savings.
The operation of bus services, terms operating a single bus on a single route may not be disadvantaged in terms of operating costs. However, a bus company operating a network of routes may be able to reduce its unit costs by attracting a higher number of passengers through operating connecting services and through ticketing. Network operation may also allow lower unit costs for marketing and providing timetable information.
As management and labor gain experience with production, the firm's marginal and average cost of producing a given level of output falls for four reasons.
Workers often take longer to accomplish a given task the first few times they do it. As they become more adept, their speed increases.
Managers learn to schedule the production process more effectively, from the flow of materials to the organization of the manufacturing itself.
Engineers, who are initially very cautious in their product designs, may gain enough experience to be able to allow for tolerances in design that save cost without increasing defects. Better and more specialized tools and plant organization may also lower cost.
Suppliers of materials may learn how to process materials required by the firm more effectively and may pass on some of this advantage to the firm in the form of lower materials cost.