Answer to Question #206529 in Microeconomics for Ede

Question

What is the relation between productivity and cost? Describe the association

using equations for MC & MP, and AP & AC

Answer 1

Productivity is a measure of production (as outputs) per unit of input (such as labor and capital) in the production process. Productivity is the ratio of production to inputs because it measures the efficiency with which production inputs (such as labor) are used to produce a given level of output. The cost of production factors are fixed cost, variable cost, and total cost. Fixed costs are costs that have been spent during the period of time considered and cannot be changed. Variable costs are costs that change with changes in production, and total costs are the sum of fixed costs and variable costs. In the long term, all inputs are variable, while in the short term, some inputs are fixed. When more variables are used (such as labor and capital), the company can expand the production of the business. For example, a company may hire more workers and use technology to grow the company. As variable costs increase, production increases. Regardless of production level, fixed costs will remain the same. Allocative and productive efficiency at P=MR= MC=min ATC. Finally, in the long run at the point equilibrium where Productivity=AC at MC =MR, output quantity of supply does not capture every cost with the S curve.