Production and costs

[Rupel]

Hi, I am not able to understand the relationship between costs and inputs. Can someone please explain how higher productivity of factors implies lower production costs. Kindly reply. Thanks.

 

[Hemant Rupani]

There are some fix cost and some variable cost.
Sobif you increase number of production variable cost to per product will be constant but fix cost to per will be decreasing until the full capacity.
So overall cost per product will decrease until full capacity reached.

 

[Rupel]

There are some fix cost and some variable cost.
Sobif you increase number of production variable cost to per product will be constant but fix cost to per will be decreasing until the full capacity.
So overall cost per product will decrease until full capacity reached.

Hi, can you please explain a bit more, because I have difficulty understanding how when production is increased, variable cost remains fixed but fixed cost will be decreasing. Kindly help.

 

[Hemant Rupani]

I'll give you 1-1 examples.
Fixed cost:- rent
Variable cost:- raw material

Now rent is fixed whether output is 1 or n(less than full capacity)
You can see higher the output lower the rent per output

Now, raw material needs depends on output linearly. So, raw material per output will be constant.

Note:- there can also be some wastage but it would not count in direct cost.

 

[Rupel]

I'll give you 1-1 examples.
Fixed cost:- rent
Variable cost:- raw material

Now rent is fixed whether output is 1 or n(less than full capacity)
You can see higher the output lower the rent per output

Now, raw material needs depends on output linearly. So, raw material per output will be constant.

Note:- there can also be some wastage but it would not count in direct cost.

I got the idea. Thank you very much Sir.