Short Run Production and Cost Analysis Report: Insights and Findings

This report provides an analysis of production output and associated costs, focusing on the short-run production environment. It examines the relationship between a firm's inputs and outputs, highlighting the concept of economic efficiency. The report delves into the dynamics of short-run production...Read More

Running Head: PRODUCTION OUTPUT AND PRODUCTION COST
Production Output and Production Cost
Name of the Student
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Author note

1PRODUCTION OUTPUT AND PRODUCTION COST
Table of Contents
Short run production and short run cost function.......................................................................2
References..................................................................................................................................4

2PRODUCTION OUTPUT AND PRODUCTION COST
Short run production and short run cost function
Production function shows the relation between quantity of factor inputs employed by
a firm and the resulted output. Production is technologically efficient when combination of
input produces maximum possible output. Another way to explain efficiency in production is
the cost effectiveness of production (Hirschey, 2016). The economic efficiency is achieved
when firms a given output can be produced at the lowest cost.
In the production process, short run is a period when firm is not able to change all the
factor of production. It is the period when there is at least one fixed input. Labor is more
likely to be variable in the short run. In the short run, there exists a close relation between
cost and production as output is the mirror image of the cost. In the short run, there is both
fixed and variable factor in the short run production. The cost for fixed factor is called fixed
cost while cost for variable factor is the variable cost (Ward & Begg, 2016). The average
variable cost is variable cost of producing per unit of output. The average product of labor is
output obtained per unit of labor. Now, in the short run when labor is the variable factor the
following relation hold between average cost and average product.
AVC= TVC
Q = W × L
Q = W
Q /L = W
AP
W: Wage rate
L: Labor
AP: Average product of labor
A similar type of relation exist between marginal cost and marginal production. The
marginal cost is additional cost of producing one additional unit of output. As marginal cost
is the change in total cost, it has no relation with the fixed cost (Hirschey, 2016). With only
labor as variable factor, marginal cost captures the additional cost of labor for additional

3PRODUCTION OUTPUT AND PRODUCTION COST
production. The marginal product of labor is the change in total output following one unit
change in labor input. The following relation is obtained between marginal product and
marginal cost.
TVC =W × L
Q
MC= d (TVC )
dQ =W × ∆ L
∆Q = W
∆ Q/∆ L = W
MP
MP: Marginal Product of labor

4PRODUCTION OUTPUT AND PRODUCTION COST
References
Hirschey, M. (2016). Managerial economics. Cengage Learning.
Ward, D., & Begg, D. (2016). Economics for business. McGraw-Hill.