Managerial Economics

Feb 3rd, 2012
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Ashford University
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In the previous unit, we learnt that output does not always increase proportionately, with increase in the quantity of inputs employed in the production process. We also learnt that certain tools exist to determine the optimal combinations of inputs which can be employed to produce the desired level of output.

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Managerial EconomicsUnit 6Unit 6Cost AnalysisStructure:6.1IntroductionCase LetObjectives6.2Types of Costs6.3Cost-Output Relationship: Cost Function6.4Cost-Output Relationships in the Short Run6.5Cost-Output Relationships in the Long Run6.6Summary6.7Glossary6.8Terminal Questions6.9Answers6.10 Case StudyReference/E-Reference6.1 IntroductionIn the previous unit, we learnt that output does not always increase proportionately, with increase in the quantity of inputs employed in theproduction process. We also learnt that certain tools exist to determine the optimal combinations of inputs which can be employed to produce the desired level of output. We saw that large scale production has some advantages and disadvantages and, we also learnt about the various economies that emerge with changes in internal and external conditions. As production involves the use of inputs which are scarce, costs are incurred by the business firm while producing and delivering a good or service. As the primary objective of business firms is profit maximisation, costs need to be controlled. In this unit, we shall explore topics in cost analysis and learn about how firms can manage their costs. Costs are analysed from the producer's point of view. Cost estimates are made in terms of money. Cost calculations are indispensable for management decisions.In the production process, a producer employs different factor inputs. These factor inputs are to be compensated by the p

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