Identify a product produced by a specific company (Ford Explorer by Ford, PS4 by

Question

Identify a product produced by a specific company (Ford Explorer by Ford, PS4 by Sony, Kindle Fire by Amazon exct...). Describe the factors of production used to produce this product. Describe the types of costs involved in the production of this product. How would you determine whether the company is using the optimal mix of factors of production in the short run? How would you determine whether the company is using the optimal mix of factors of production in the long run? How would you determine whether the company is benefitting from economies of scale? How would you determine whether the company is benefitting from economies of scope?

Explanation / Answer

Product:

Unilever - Pepsodent Toothpaste

Factors of production used are:

Types of cost:

In the short run, atleast there is a factor of production which is fixed. Like in above case, the existing number of labors can be fixed cost. Basis the number of labors and machine capability output can be determined. The multifactor productivity can be used to determine output per dollar of input. The machine and utility are variable factors. So, Break even can be determined basis the existing demand

Total cost = Fixed cost + Variable cost

At Break even, Total cost = Total revenue

In the long run, the factors are assumed to be variable. Thus, number of labors can be changed, number of machines can be changes etc. So, all these costs are added up and compared with forecasted demand. Basis the forecast, reverse working is done to determine the requirement of Labor and machines.

Hence, basis the Total cost and Total revenue, we can determine whether company is using the Optimal mix or not

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