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ECO 365 Week 2 Learning Team Reflection - Production and Cost Analysis

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WEEK 2 REFLECTION – TEAM B 1
WEEK 2 REFLECTION-TEAM B
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WEEK 2 REFLECTION – TEAM B 2
Production and Cost Analysis
This paper is the first in a series of weekly team reflection discussions from Team B
(Bravo). In week 2 we explored the relationships between the number of inputs and the law of
diminishing marginal productivity, the relationship between productivity and the cost of
production, long and short-run planning, and effects of marginal revenues and costs on profit
making.
Number of inputs and the law of diminishing marginal productivity
Production, cost, and supply establishes the existence for a firm, enabling the firm to
undertake the activity of producing a profit through managing production in timely coordinated
material distribution to the market affecting demand, which in turn sets the price. This is
accomplished through inputs from individual workers or other constants such as technological
advances (automation). Nevertheless, what is the relationship? Inputs focus on a firm’s potential
profitability related to its goods and services. For example, how many city workers does it take
to fill a pothole? Two supervisors and one worker, the cost to the city can be reduced if you limit
the input on specific tasks. Moreover, when variable inputs continue to increase and fixed inputs
don’t the law of diminishing marginal production occurs, one fixed input can only produce so
much regardless of variable inputs. The opportunity to get more done requires more input, thus
the flowerpot theory is diminished because the firm has downsized to increase profit only to
rehire because of growth.
Productivity and the cost of production
In analyzing the relationship between productivity and the cost of production, one must
consider exactly what the cost of production is. From the text, our team was able to decipher that
cost of production is the amount of assured costs that are correlated with the production of
merchandise.
Some of these costs are materials that make the merchandise which includes variable costs
as well as processing costs. Therefore, the relationship between productivity and the cost of
production is that you are able to know what your costs are per hour and day as well as compare
it to the rate of productivity (Colander, 2010).
Effects of marginal revenues and costs on profit making
The goal of any business is to make profit or to get as much profit as possible out of the
goods or services sold. Marginal revenues and marginal costs play a big role in maximizing

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WEEK 2 REFLECTION – TEAM B 3
profits. Both determine what is the profit maximizing level or loss minimizing level of output
will be. When a firm is making profits it is when marginal revenue equals marginal costs. If a
company increases output well then its revenue increases too.
Marginal costs decrease as more quantities are produced until it hits a point where it finds
its profit maximizing level then after that the marginal costs increase as more quantities are
produced. After that point profits are minimizing. A firm can increase output just as long as the
marginal cost is below the marginal revenue. If marginal revenue is greater than marginal costs
than marginal profits are positive. If marginal revenue equals marginal costs then marginal profit
is zero. If marginal revenue is less than marginal costs then marginal profit is negative.
Long-Run and Short-Run Planning Decisions
The long run and the short run are the subdivisions of the production process. The long
run planning decisions are done over a period of time in which the quantities of all inputs can be
varied. This is in contrast to the short run planning decisions in which some factors are variable
and others are fixed which puts constraints on entering or exiting an industry. These planning
decisions are not necessarily associated with a time period, but are geared more to the
degree of flexibility the firm has in changing the level of output.
The long run has no specific time. It is the time period long enough to take advantage of
economic opportunities. Long run decisions provide more flexibility and allow a firm to choose
among all possible production techniques (Colander, 2010). During a long run process, a firm
may decide what it needs to do to produce at more capacity. It may decide on building a new
plant, the types of machines and technology needed to achieve this production and selects the
optimal combination of inputs for the company in the long run.
The short run also is not associated with a period of time. Short run planning decisions
are done in a period of time long enough for existing firms to increase production in reaction to
economic conditions, but do not affect the long run planning of increasing capacity and plant size
or technology used. Short run decisions allow a firm to adjust its long run planning decisions in
which some factors are variable and others are fixed, which allow for more constraints than those
of the long run decisions.
Conclusion

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