Factors of Production

Land, Labor, Capital and entrepreneurship depending on the economist and text are typically the factors of production (Case, Fair, & Oster, 2016). Economists regularly evaluate and consider production technologies (the relationship between inputs and outputs) and the factors that contribute to production technologies such as capital and labor. Capital (money, property, and equipment) and labor (the work that people do) are very closely related; indeed, they are complementary (Case, Fair, & Oster, 2016).

Think about the world of farming (agriculture). Consider a day when tractors did not exist. In order to operate a farm and fields, because there was little capital in the form of tractors, a farm owner must use complementary inputs such as labor to get the job done. As technological advances developed, the need for so many employees diminished, and fewer and fewer people farmed (Case, Fair, & Oster, 2016). They instead moved to other jobs such as office, retail, and service. Such additional capital in the form of tractors increased the productivity of each farm. Now, there are still things that are sometimes best done by labor, and farmers make everyday decisions based on technological alternatives whether or not to invest in more technology or to pay people to do similar work. Your first discussion post depends on this conceptchoosing between different technological requirements.

Average, Marginal, and Fixed Costs

Another key concept to economists is the concept of marginal costs, as shown in the8.1 - Marginal CostLinks to an external site.video. ReviewWith Corn Prices Rising, Pigs Switch to Fatty SnacksLinks to an external site., and consider costs (Etter, 2007).

We also consider fixed costs versus variable costs. A fixed cost in a firm tends to be more controlled, and consistent costs that a firm has to pay in order to sustain a business while a variable cost is one that tends to fluctuate (Case, Fair, & Oster, 2016).

Short-Run and Long-Run Decision Making

The concept of diminishing returns is key to making decisions, both short-term and long-term (Case, Fair, & Oster, 2009). An easy way to think of diminishing returns is in the world of weight loss. For any of you who have ever tried to lose weight, or know someone who has, you know that early on in the process, it's easier to lose weight than later on in the process. For example, if you walk three times a week early on, you will lose more weight than a few months later when you still walk those three times a week. That is an example of diminishing returnsand we see it in the world of productivity and economic output as well.

Short-Run Production Relationships:Short-run production reflects the law of diminishing returns which tells us that as more units of a variable resource are added to afixed resource, a point will eventually be reached such that the additional product will begin to decline.

Associated concepts include:

• Total product (TP) is the total quantity, or total output, of a particular good produced.
• Marginal product (MP) is the change in total output resulting from each additional input of labor.
• Average product (AP) is the total product divided by the total number of workers.

Keep in mind that:

• When marginal product begins to diminish, the rate of increase in total product stops accelerating and grows at a diminishing rate (aninflection pointon the TP graph).
• The average product declines at the point at which the marginal product slips below average product. (HINT: Consider your bowling average. Themarginalis the next game played. If that next game is HIGHER than your average, it will pull up the average ... if LOWER, your average will be pulled down.)
• Total product declines when the marginal product becomes negative.
• The law of diminishing returns assumes all units of variable inputsincluding workersare of equal quality. Marginal product diminishes not because successive workers are inferior but because more workers are being used relative to the amount of plant and equipment available. Inefficiency results because things begin to bottleneck.

Short-Run Production Costs include FIXED, VARIABLE & TOTAL

• Total fixed costsare those costs that do not change regardless of the level of output. Even if output were zero units the fixed cost still must be paid! Think of this as the monthly rent on a production facility.
• Total variable costsare those costs that change with the level of output. They include payment for materials, fuel, power, transportation services, most labor, and similar costs.
• Total costis the sum of total fixed and total variable costs at each level of output, sometimes expressed as TC = TFC + TVC (Q).

Averages are just like calculating your bowling average or your gpa! Take the total and divide by the number of ...

• Average fixed costis the total fixed cost divided by the level of output (TFC/Q). It will decline as output rises. Sometimes we call thisspreading the fixed cost.
• Average variable costis the total variable cost divided by the level of output (AVC = TVC/Q).
• Average total costis the total cost divided by the level of output (ATC = TC/Q), sometimes called unit cost or per unit cost. Note that ATC also equals AFC + AVC.

Marginal Costs (i.e., the increase in cost based on "the next" unit)

• Marginal costis the additional cost of producing one more unit of output (MC = change in TC/change in Q). Marginal cost can also be calculated as MC = change in TVC/change in Q. (If you have taken a calculus class you will recognize this as the first derivative). Marginal decisions are very important in determining profit levels. Marginal revenue and marginal cost are equal when profit is maximized.
• Marginal costis a reflection of marginal product and diminishing returns. When diminishing returns begin, the marginal cost will begin its rise. The marginal cost is related to AVC and ATC. These average costs will fall as long as the marginal cost is less than either average cost. As soon as the marginal cost rises above the average, the average will begin to rise.
  1. Imagine that you own a restaurant in downtown Chattanooga. You are thinking about expanding the restaurant by adding more workers and buying more kitchen equipment. Based on this scenario and the readings for this week, answer the following questions in a minimum of 300 words:

Long-Run

In the long run, all production costs are variable, that is, long-run costs reflect changes in plant size, and industry size can be changed (expand or contract). We refer to these long-run concepts in terms of economies of scale and that will be especially important as you begin to learn about the two most "concentrated" market structures, monopoly and oligopoly. The long-run ATC curve shows the least per unit cost at which any output can be produced after the firm has had time to make all appropriate adjustments in its plant size. Economies or diseconomies of scale exist in the long run.

Economies/Diseconomies of Scale in the Long Run

Economies of scaleor economies of mass production explain the downward sloping part of the long-run ATC curve, that is, as plant size increases, long-run ATC decrease. These happen because of factors such as labor and managerial specialization; the ability to purchase and use more efficient capital goods; and design, development, or other start-up costs such as advertising and learning by doing. Diseconomies of scalemay occur if a firm becomes too large as illustrated by the rising part of the long-run ATC curve. For example, if a 10 percent increase in all resources results in a five percent increase in output, ATC will increase. Some reasons for this include distant management, worker alienation, and problems with communication and coordination. Constant returns to scalewill occur when ATC is constant over a variety of plant sizes.

Check out this example of the long-run equilibrium:Economics Long Run Macroeconomic EquilibriumLinks to an external site.

For example, poor countries grow very quickly when workers lack rudimentary tools and, as a result, have low productivity (Case, Fair, & Oster, 2009). For example, a worker in a country like that might increase his or her productivity level ten-fold with the use of $100 in tools. However, as capital increases in that country, and as workers become more skilled, productivity increases, but increasingly at a lower rate. Workers in wealthy countries have relatively large amounts of capital and already experience higher productivity. For instance, if a worker gets an additional $100 worth of tools (perhaps in the form of a new computer program), it is unlikely that their productivity level would increase ten-fold, or even two-fold. They might make small increases in productivity, but nowhere near the relative amount of the workers in the poor country.

References

Amacher, R., & Pate, J. (2019).Principles of macroeconomics(2^nded.). San Diego, California: Bridgepoint Education.

Beattie, B. R., & LaFrance, J. T. (2006). The law of demand versus diminishing marginal utility.Review of Agricultural Economics, 28(2), 262-271. doi:10.1111/j.1467-9353.2006.00286.x

Case, K. E., Fair, R. C., & Oster, S. E. (2016)Principles of Microeconomics(12th ed.). New York, NY: Pearson.

Etter, L. (2007, May 22).With corn prices rising, pigs switch to fatty snacksLinks to an external site.. Retrieved from https://www.thepigsite.com/news/2007/05/with-corn-prices-up-pigs-switch-to-fatty-snacks-1

Khan Academy. (n.d.).ElasticityLinks to an external site.. Retrieved fromhttps://www.khanacademy.org/science/microeconomics/elasticity-tutorial

MacMillian, D., & Lehman, P. (2008, January 27).The economics of the Super BowlLinks to an external site.. Retrieved fromhttp://www.msnbc.msn.com/id/22870460/

Mankiw, N. G. [MankiwExperience]. (2010, May 23).Chapter: Elasticity and its applicationLinks to an external site.[Video file]. Retrieved fromhttp://www.youtube.com/watch?v=W-ioBJFqWKU

McKenzie, R. [Richard McKenzie]. (2007, March 1).8.1Marginal costLinks to an external site.[Video file]. Retrieved fromhttps://youtu.be/adldDfQOSg8

Shelby Kerns. (2013, December 2).Economics long run macroeconomic equilibriumLinks to an external site.[Video]. YouTube. https://www.youtube.com/watch?

Question:

• Distinguish between the short run and the long run for your restaurant. Make sure to provide examples.
• Explain if the restaurant faces the issue of diminishing marginal product of labor.
• Discuss how the restaurant can reduce diminishing marginal productivity while expanding the business.
  1. Using Chic Fila, what are your thoughts on the following below?
• Describe how the long-run average cost (LRAC) curve can be derived from the short-run average total cost (SRATC) curve.
• Discuss if the business you chose enjoys economies of scale. Be sure to provide reasons why the business may or may not have economies of scale.
• Explain how economies of scale help your business compete in its industry.

Factors of Production

Land, Labor, Capital and entrepreneurship depending on the economist and text are typically the factors of production (Case, Fair, & Oster, 2016). Economists regularly evaluate and consider production technologies (the relationship between inputs and outputs) and the factors that contribute to production technologies such as capital and labor. Capital (money, property, and equipment) and labor (the work that people do) are very closely related; indeed, they are complementary (Case, Fair, & Oster, 2016).

Think about the world of farming (agriculture). Consider a day when tractors did not exist. In order to operate a farm and fields, because there was little capital in the form of tractors, a farm owner must use complementary inputs such as labor to get the job done. As technological advances developed, the need for so many employees diminished, and fewer and fewer people farmed (Case, Fair, & Oster, 2016). They instead moved to other jobs such as office, retail, and service. Such additional capital in the form of tractors increased the productivity of each farm. Now, there are still things that are sometimes best done by labor, and farmers make everyday decisions based on technological alternatives whether or not to invest in more technology or to pay people to do similar work. Your first discussion post depends on this conceptchoosing between different technological requirements.

Average, Marginal, and Fixed Costs

Another key concept to economists is the concept of marginal costs, as shown in the8.1 - Marginal CostLinks to an external site.video. ReviewWith Corn Prices Rising, Pigs Switch to Fatty SnacksLinks to an external site., and consider costs (Etter, 2007).

We also consider fixed costs versus variable costs. A fixed cost in a firm tends to be more controlled, and consistent costs that a firm has to pay in order to sustain a business while a variable cost is one that tends to fluctuate (Case, Fair, & Oster, 2016).

Short-Run and Long-Run Decision Making

The concept of diminishing returns is key to making decisions, both short-term and long-term (Case, Fair, & Oster, 2009). An easy way to think of diminishing returns is in the world of weight loss. For any of you who have ever tried to lose weight, or know someone who has, you know that early on in the process, it's easier to lose weight than later on in the process. For example, if you walk three times a week early on, you will lose more weight than a few months later when you still walk those three times a week. That is an example of diminishing returnsand we see it in the world of productivity and economic output as well.

Short-Run Production Relationships:Short-run production reflects the law of diminishing returns which tells us that as more units of a variable resource are added to afixed resource, a point will eventually be reached such that the additional product will begin to decline.

Associated concepts include:

• Total product (TP) is the total quantity, or total output, of a particular good produced.
• Marginal product (MP) is the change in total output resulting from each additional input of labor.
• Average product (AP) is the total product divided by the total number of workers.

Keep in mind that:

• When marginal product begins to diminish, the rate of increase in total product stops accelerating and grows at a diminishing rate (aninflection pointon the TP graph).
• The average product declines at the point at which the marginal product slips below average product. (HINT: Consider your bowling average. Themarginalis the next game played. If that next game is HIGHER than your average, it will pull up the average ... if LOWER, your average will be pulled down.)
• Total product declines when the marginal product becomes negative.
• The law of diminishing returns assumes all units of variable inputsincluding workersare of equal quality. Marginal product diminishes not because successive workers are inferior but because more workers are being used relative to the amount of plant and equipment available. Inefficiency results because things begin to bottleneck.

Short-Run Production Costs include FIXED, VARIABLE & TOTAL

• Total fixed costsare those costs that do not change regardless of the level of output. Even if output were zero units the fixed cost still must be paid! Think of this as the monthly rent on a production facility.
• Total variable costsare those costs that change with the level of output. They include payment for materials, fuel, power, transportation services, most labor, and similar costs.
• Total costis the sum of total fixed and total variable costs at each level of output, sometimes expressed as TC = TFC + TVC (Q).

Averages are just like calculating your bowling average or your gpa! Take the total and divide by the number of ...

• Average fixed costis the total fixed cost divided by the level of output (TFC/Q). It will decline as output rises. Sometimes we call thisspreading the fixed cost.
• Average variable costis the total variable cost divided by the level of output (AVC = TVC/Q).
• Average total costis the total cost divided by the level of output (ATC = TC/Q), sometimes called unit cost or per unit cost. Note that ATC also equals AFC + AVC.

Marginal Costs (i.e., the increase in cost based on "the next" unit)

• Marginal costis the additional cost of producing one more unit of output (MC = change in TC/change in Q). Marginal cost can also be calculated as MC = change in TVC/change in Q. (If you have taken a calculus class you will recognize this as the first derivative). Marginal decisions are very important in determining profit levels. Marginal revenue and marginal cost are equal when profit is maximized.
• Marginal costis a reflection of marginal product and diminishing returns. When diminishing returns begin, the marginal cost will begin its rise. The marginal cost is related to AVC and ATC. These average costs will fall as long as the marginal cost is less than either average cost. As soon as the marginal cost rises above the average, the average will begin to rise.
  1. Imagine that you own a restaurant in downtown Chattanooga. You are thinking about expanding the restaurant by adding more workers and buying more kitchen equipment. Based on this scenario and the readings for this week, answer the following questions in a minimum of 300 words:

Long-Run

In the long run, all production costs are variable, that is, long-run costs reflect changes in plant size, and industry size can be changed (expand or contract). We refer to these long-run concepts in terms of economies of scale and that will be especially important as you begin to learn about the two most "concentrated" market structures, monopoly and oligopoly. The long-run ATC curve shows the least per unit cost at which any output can be produced after the firm has had time to make all appropriate adjustments in its plant size. Economies or diseconomies of scale exist in the long run.

Economies/Diseconomies of Scale in the Long Run

Economies of scaleor economies of mass production explain the downward sloping part of the long-run ATC curve, that is, as plant size increases, long-run ATC decrease. These happen because of factors such as labor and managerial specialization; the ability to purchase and use more efficient capital goods; and design, development, or other start-up costs such as advertising and learning by doing. Diseconomies of scalemay occur if a firm becomes too large as illustrated by the rising part of the long-run ATC curve. For example, if a 10 percent increase in all resources results in a five percent increase in output, ATC will increase. Some reasons for this include distant management, worker alienation, and problems with communication and coordination. Constant returns to scalewill occur when ATC is constant over a variety of plant sizes.

Check out this example of the long-run equilibrium:Economics Long Run Macroeconomic EquilibriumLinks to an external site.

For example, poor countries grow very quickly when workers lack rudimentary tools and, as a result, have low productivity (Case, Fair, & Oster, 2009). For example, a worker in a country like that might increase his or her productivity level ten-fold with the use of $100 in tools. However, as capital increases in that country, and as workers become more skilled, productivity increases, but increasingly at a lower rate. Workers in wealthy countries have relatively large amounts of capital and already experience higher productivity. For instance, if a worker gets an additional $100 worth of tools (perhaps in the form of a new computer program), it is unlikely that their productivity level would increase ten-fold, or even two-fold. They might make small increases in productivity, but nowhere near the relative amount of the workers in the poor country.

References

Amacher, R., & Pate, J. (2019).Principles of macroeconomics(2^nded.). San Diego, California: Bridgepoint Education.

Beattie, B. R., & LaFrance, J. T. (2006). The law of demand versus diminishing marginal utility.Review of Agricultural Economics, 28(2), 262-271. doi:10.1111/j.1467-9353.2006.00286.x

Case, K. E., Fair, R. C., & Oster, S. E. (2016)Principles of Microeconomics(12th ed.). New York, NY: Pearson.

Etter, L. (2007, May 22).With corn prices rising, pigs switch to fatty snacksLinks to an external site.. Retrieved from https://www.thepigsite.com/news/2007/05/with-corn-prices-up-pigs-switch-to-fatty-snacks-1

Khan Academy. (n.d.).ElasticityLinks to an external site.. Retrieved fromhttps://www.khanacademy.org/science/microeconomics/elasticity-tutorial

MacMillian, D., & Lehman, P. (2008, January 27).The economics of the Super BowlLinks to an external site.. Retrieved fromhttp://www.msnbc.msn.com/id/22870460/

Mankiw, N. G. [MankiwExperience]. (2010, May 23).Chapter: Elasticity and its applicationLinks to an external site.[Video file]. Retrieved fromhttp://www.youtube.com/watch?v=W-ioBJFqWKU

McKenzie, R. [Richard McKenzie]. (2007, March 1).8.1Marginal costLinks to an external site.[Video file]. Retrieved fromhttps://youtu.be/adldDfQOSg8

Shelby Kerns. (2013, December 2).Economics long run macroeconomic equilibriumLinks to an external site.[Video]. YouTube. https://www.youtube.com/watch?

Question:

Question:

1. Imagine that you own a restaurant in downtown Chattanooga. You are thinking about expanding the restaurant by adding more workers and buying more kitchen equipment. Based on this scenario and the readings for this week, answer the following questions in about of 400 words please

• Distinguish between the short run and the long run for your restaurant. Make sure to provide examples.
• Explain if the restaurant faces the issue of diminishing marginal product of labor.
• Discuss how the restaurant can reduce diminishing marginal productivity while expanding the business.
  1. Using Chic Fila, what are your thoughts on the following below in about 400 words please?
• Describe how the long-run average cost (LRAC) curve can be derived from the short-run average total cost (SRATC) curve.
• Discuss if the business you chose enjoys economies of scale. Be sure to provide reasons why the business may or may not have economies of scale.
• Explain how economies of scale help your business compete in its industry.