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Cost of production


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by:Mrs. Anapi

Published in: Business, Technology
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Cost of production

  1. 2. COST OF PRODUCTION <ul><li>Price of the inputs used in the production process </li></ul><ul><ul><ul><li>Labor </li></ul></ul></ul><ul><ul><ul><li>Capital </li></ul></ul></ul><ul><ul><ul><li>Land </li></ul></ul></ul><ul><ul><ul><li>Enterprise </li></ul></ul></ul>
  2. 3. <ul><li>technical relationship between an inputs and outputs </li></ul><ul><ul><ul><li>Shows possible output for a given inputs </li></ul></ul></ul><ul><ul><ul><li>e.g. A kilo of flour could yield 45 pieces muffins </li></ul></ul></ul><ul><li>Governed by the economic principle “ Law of diminishing marginal productivity” </li></ul>
  3. 4. “ Law of diminishing marginal productivity” <ul><li>Increases in variable input will result in increases in total production at a decreasing rate </li></ul><ul><ul><li>additional contribution of the variable input to total output decreases, as the variable input is increased </li></ul></ul><ul><ul><li>(2 laborers in a Internet Café are enough, to add 1 more, would decrease the output) </li></ul></ul>
  4. 5. <ul><li>2 Categories of Inputs </li></ul><ul><li>Intermediate Inputs – raw materials </li></ul><ul><li>(are transformed and process to new products) </li></ul><ul><li>Factor Inputs – utilized in transforming raw materials into processed products </li></ul><ul><li>F.I. facilitates in the transformation of I.I. into new products </li></ul>
  5. 6. <ul><li>the service rendered in the process of production </li></ul><ul><li>- effort exerted to secure economic benefits </li></ul><ul><ul><ul><li>Use of physical or mental abilities </li></ul></ul></ul><ul><ul><ul><li>Wage is the payment for labor </li></ul></ul></ul>
  6. 7. <ul><li>Productivity of workers - payment commensurate to the productivity </li></ul><ul><li>Opportunity cost of working - how individual values alternative activities to working </li></ul><ul><li>Equilibrium wage - the payment reflective of the productivity of the workers as well as the amount he/she is willing to accept to entice him/het to work </li></ul>
  7. 8. <ul><li>Material things resulting from man’s effort </li></ul><ul><li>Produces goods used for further production </li></ul><ul><li>Medium by which land and labor (the real productive powers), exert their instrumentality </li></ul><ul><ul><ul><li>Buildings, equipment, materials used in production </li></ul></ul></ul>
  8. 9. <ul><li>Real Capital - factories or pieces of machinery used to produced goods </li></ul><ul><li>Financial Capital - financial assets like shares of stocks, bonds or basic deposit </li></ul>
  9. 10. <ul><li>Fixed Capital - immovable durable goods which are used repeatedly </li></ul><ul><ul><li>Building; heavy machineries </li></ul></ul><ul><li>Circulating Capital - those which are used once, like raw materials </li></ul>
  10. 11. <ul><li>Natural resources </li></ul><ul><li>RENT - payment for the use of land </li></ul><ul><ul><ul><ul><li>Determined by the demand for land </li></ul></ul></ul></ul>
  11. 12. <ul><li>Coordinates with other 3 factors to function smoothly, efficiently and fruitfully. </li></ul><ul><li>Responsible for initiation, organization and operation of production and for assuming risk to failure. </li></ul><ul><li>Factor = Enterprise </li></ul><ul><li>Individual who assumes responsibility = entrepreneur </li></ul>