Managerial Economics - Production Essay Example | Topics and Well Written Essays - 1000 words

Managerial Economics - Production - Essay case remarks atomic number 18 the resources used in the exertion of goods and services. Inputs are classified into confinement, gravid and land or instinctive resources. Inputs are also classified as fixed or variable. Fixed inputs are those that cannot be quick changed during the time period under consideration, except perhaps at very great expense. Variable inputs are those that can be varied easily and on very short notice.The time period through with(predicate) which at least genius input is set is c tout ensembleed the short run, while the time period when all inputs are variable is called the long run. The length of the long run depends on the industry. In the short run, a fuddled can increase payoff only if by using much of the variable inputs in concert with the fixed inputs. In the long run, the same increase in take could likely be obtained more efficiently by also expanding the firms production facilities. In the long run, technology usually improves.A production function is an par, table, or graph showing the maximum output of a commodity that a firm can produce per period of time with each set of inputs. Both inputs and outputs are measured in physical rather than in monetary units.For simplicity we assume hear that a firm produces only one type of output (commodity or service) with two inputs, labour (L) and capital (K). Thus the general equation of this simple production function is Q = f (L, K). The criterion of output is a function of, or depends on, the quantity of labour and capital used in production. Output refers to the number of units of the commodity produced, labour refers to the number of workers employed, and capital refers to the amount of the equipment used in production. An explicit production function would indicate precisely the quantity of output that the firm would produce with each particular set of inputs of labour and capital.Optimal Use of Variable InputThe firm shou ld employ an additional unit of labour as long as the supernumerary gross generated from the sale of the output produced exceeds the extra cost of hiring the unit of labour (i.e., until the extra revenue reachs the extra cost). The extra revenue generated by the use of an additional unit of labour is called the marginal revenue product of labour (MRPL). This equals the marginal product of labour (MPL) times the marginal revenue (MR) from the sale of the extra output produced. This is MRPL = (MPL) (MR). The extra cost of hiring an additional unit of labour or marginal resource cost of labour (MRCL) is equal to the increase in the total cost to the firm resulting from hiring the additional unit of labour. That is, MRCL = TC/L A firm should continue to hire labour as long as MRPL MRCL and until MRPL = MRCL. optimization AnalysisOptimization analysis can best be explained by examining the process by which a firm determines the output level at which it maximizes total profits. While the process the firm maximized total profit was determined in a higher place by looking at the total-revenue and total-cost, it is more useful to use marginal analysis. Indeed, marginal analysis is one of the most important concepts in managerial economics in general and in optimization analys