Levi Strauss & Co. Marketing director has recommended our strategic planning team o execute a competitive market analysis to verify the products potential success. Factors affecting variable costs, including productivity and others that change the supply of and demand for labor. In most organizations short run and long runs are divided Into production process which has an effect on variable cost. The short run some Inputs are fixed therefore the firm Is constrained to what production decisions It can make.
In the long run process all inputs are fixed therefore a firm can choose from several other production processes. There is no time period for a short run or a long run but since labor cost s a variable the firm has limited flexibility when changing the level of output. Variable cost has a u-shape in the short run the output will increase by increasing variable input. Other affecting factors are the higher the wage, the lower the quantity of labor demanded.
With the fixed input the more variable inputs you add such labor the more likely the Input is going to fall. * Average variable costs (PVC) equals variable cost divided by quantity produced, PVC = PVC/Q. * “As more and more of a variable Input Is added (I. E. , labor) to an existing fixed Input, eventually the additional output one gets from that additional Input Is going to If marginal productivity is rising, marginal costs are falling ; If average productivity is falling, average costs are rising * Technology is replacing many jobs.
The possibility, and cost, of substitution in production (Fred: plummet stone) 4. The degree to which the marginal produce- divinity falls with an increase in labor Shift factors of demand * Technology both increases/decreases the demand for labor International competitiveness may increase the demand for labor in the U. S. In spite of lower wages in foreign countries because. * U. S. Workers may be more productive * Transportation costs are lower * Foreign companies can avoid trade restrictions * Production techniques are not compatible with foreign social institutions * Focal point phenomenon is a situation where a company moves to a country because others have already moved there . The cost of a competing factor of supply rises (labor demand shifts right) Apple/Google * A new technology develops that requires skills different from those currently being used (demand for individuals without this knowledge will shift left) Right: Electrical Engineers w/let An industry becomes more monopolistic (demand for workers would decrease) Chevron refinery workers * Demand for the firm’s good increases (demand for labor will increase). Demand: The quantity of a good or service that consumers demand depends on price and other factors such as consumers’ incomes and the price of related goods. 2. Supply: The quantity of a good or service that firms supply depends on price and other factors such as the cost of inputs that firms use to produce the good or service. The amount of a good that consumers are willing to buy at a given price during a pacified time period (such as a day or a year), holding constant the other factors that influence purchases, is the quantity demanded.
Potential consumers decide how much of a good or service to buy on the basis of its price,. Price that a consumer must spend on a good, and government-imposed limits on the use of a good may affect demand. If a city’s government bans the use of skateboards on its streets, skateboard sales fall. Other factors may also affect the demand for specific goods. Some people are more likely to buy two-hundred-dollar pairs of shoes if their friends do too. The demand or small, dying evergreen trees is substantially higher in December than in other months. Although many factors influence demand, economists usually concentrate on how price affects the quantity demanded.
The relationship between price and the quantity demanded plays a critical role in determining the market price and quantity in a supply-and-demand analysis. To determine how a change in price affects the quantity demanded, economists must hold constant other factors, such as income and tastes, that affect demand. 1 Because prices, quantities, and other factors change simultaneously over time, economists use statistical techniques to hold constant the effects of factors other than the price of the good so that they can determine how price affects the quantity demanded. (See Appendix 2 at the end of the chapter. ) Mooching and Emilee (1992) used such techniques to estimate the pork demand curve. In Equation 2. 2, Vie rounded the number slightly for simplicity.
As with any estimate, their estimates are probably more accurate in the observed range of pork prices ($1 to $6 per keg) than at very high or very low prices. The quantity supplied is the amount of a good that firms want to sell during a given mime period at a given price, holding constant other factors that influence firms’ supply decisions, such as costs and government actions. Firms determine how much of a good to supply on the basis of the price of that good and other factors, including the costs of production and government rules and regulations. Usually, we expect firms to supply more at a higher price. Before concentrating on the role of price in determining supply, we’ll briefly consider the role of some of the other factors. Costs of production affect how much of a good firms want to sell.
As a firm’s cost falls, it is willing to supply more of the good, all else the same. If the firm’s cost exceeds what it can earn from selling the good, the firm sells nothing. Thus factors that affect costs also affect supply. A technological advance that allows a firm to produce a good at a lower cost leads the firm to supply more of that good, all else the same. Government rules and regulations affect how much firms want to sell or are allowed to sell. Typically, short-run demand or supply elasticity differ substantially from long-run elasticity. The duration of the short run depends on the planning horizon-?how long it takes consumers or firms to adjust for a particular good.
