Production and Costs a) Describe three key inputs (or factors of production) and

Question

Production and Costs

a) Describe three key inputs (or factors of production) and fixed and variable costs involved in the production of over the counter pain medications. One example of an input is machines, which are fixed costs. Keep in mind that all inputs will either fall under fixed or variable cost.

b) Analyze the factors that impact your choice of inputs to produce the pain medications. For example, how would a change in the price of raw materials impact the combination of inputs?

c) Based on this analysis, what production decisions would you make? Be sure to support your decisions with examples or data.

Explanation / Answer

A machinery is fixed cost, labour and chemicals are variable cost

B An increase in wage or decrease in it, increase or decrease in price of machinery i.e capital, availability of cheap electricity etc impact firms decisions regarding inputs

C if wage falls I will substitute labour for capital. If wage rises I will substitute capital for labour. Similarly if price of capital increases I will substitute labour for capital e.g if price of automatic packaging machinery increases I will prefer packaging by labour. On the other hand if price of capital falls I will substitute capital for labour. If electricity supply is uninterrupted and cheap I will not use my generator otherwise I will use my own generator

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