# 7.3 The structure of costs in the long run  (Page 2/26)

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Production technology 1 uses the most labor and least machinery, while production technology 3 uses the least labor and the most machinery. [link] outlines three examples of how the total cost will change with each production technology as the cost of labor changes. As the cost of labor rises from example A to B to C, the firm will choose to substitute away from labor and use more machinery.

 Example A: Workers cost \$40, machines cost \$80 Labor Cost Machine Cost Total Cost Cost of technology 1 10 × \$40 = \$400 2 × \$80 = \$160 \$560 Cost of technology 2 7 × \$40 = \$280 4 × \$80 = \$320 \$600 Cost of technology 3 3 × \$40 = \$120 7 × \$80 = \$560 \$680 Example B: Workers cost \$55, machines cost \$80 Labor Cost Machine Cost Total Cost Cost of technology 1 10 × \$55 = \$550 2 × \$80 = \$160 \$710 Cost of technology 2 7 × \$55 = \$385 4 × \$80 = \$320 \$705 Cost of technology 3 3 × \$55 = \$165 7 × \$80 = \$560 \$725 Example C: Workers cost \$90, machines cost \$80 Labor Cost Machine Cost Total Cost Cost of technology 1 10 × \$90 = \$900 2 × \$80 = \$160 \$1,060 Cost of technology 2 7 × \$90 = \$630 4 × \$80 = \$320 \$950 Cost of technology 3 3 × \$90 = \$270 7 × \$80 = \$560 \$830

Example A shows the firm’s cost calculation when wages are \$40 and machines costs are \$80. In this case, technology 1 is the low-cost production technology. In example B, wages rise to \$55, while the cost of machines does not change, in which case technology 2 is the low-cost production technology. If wages keep rising up to \$90, while the cost of machines remains unchanged, then technology 3 clearly becomes the low-cost form of production, as shown in example C.

This example shows that as an input becomes more expensive (in this case, the labor input), firms will attempt to conserve on using that input and will instead shift to other inputs that are relatively less expensive. This pattern helps to explain why the demand curve for labor (or any input) slopes down; that is, as labor becomes relatively more expensive, profit-seeking firms will seek to substitute the use of other inputs. When a multinational employer like Coca-Cola or McDonald’s sets up a bottling plant or a restaurant in a high-wage economy like the United States, Canada, Japan, or Western Europe, it is likely to use production technologies that conserve on the number of workers and focuses more on machines. However, that same employer is likely to use production technologies with more workers and less machinery when producing in a lower-wage country like Mexico, China, or South Africa.

## Economies of scale

Once a firm has determined the least costly production technology, it can consider the optimal scale of production, or quantity of output to produce. Many industries experience economies of scale. Economies of scale refers to the situation where, as the quantity of output goes up, the cost per unit goes down. This is the idea behind “warehouse stores” like Costco or Walmart. In everyday language: a larger factory can produce at a lower average cost than a smaller factory.

what is tourism
Tourism is travel for pleasure or business
Yusuf
It is the commercial organization and operation of holidays and visits to places of interest.
Nureni
who is a price taker?
A price taker is a person or a company who have no control to dictate a prices of a goods or services
Unique
Someone who sets price
Nureni
In the trading world, a price taker is a trader who does not affect the price of the stock if he or she buys or sells shares.
Nureni
in a common and suitable sense state the law of diminishing returns
The higher the satisfaction derived from a particular commodity,the lower the demand for it but that law doesn't match in some instances.
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state the features of an imperfect competitive market
Naomi
@NURENI instance like wat
Unique
imperfect competitive market involves large number of sellers and buyers price makers selling cost product differentiation free entry and exit of a firms
Unique
is economics a science
yes. a social science.
Carlos
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Aziz
U can understand the scientific nature of economics by learning about the methods used by Abhijit Banerjee(indian) ,the nobel prize laureate 2019.
Harshita
it is considered as a social science
idk
Hence, economics is a science, a social science many can call it, or more appropriately, a young science
Taha
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human behaviour*
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Alexander
economics is a science cos it deals with human wants, desire or neads in order to satisfy them
Unique
according comparision of political science economic is science.
Hassan
what's the question?
Discuss economics system
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Give the features characteristics of market or free enterprise
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hello everyone , I'm New here, third degree price discrimination?
2nd degree price discrimination?
Saeed
hi
Kini
hi
Mitchel
Hi
MP
price paid by consumers after the sales tax is called?
why government impose price floor on certain products?
Pinias
how can black market be occurred when price ceiling is introduced?
Pinias
How can inflation affect goods and services?
Ph
When prices rise for energy, food, commodities, and other goods and services, the entire economy is affected
Joan
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Joan
Is it necessary to make decision when it fails you
Pls when what fails u
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I think so
Kini
well i might naught know what you on about but i gotta tell you, it is necessary
Troy
yep
Ibe
Kk
MP
yep
Ibe
how can the demand side approach solve unemployment
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demand side approach to solve unemployment
no get ur questions
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differentiate between choice and scale of preference
choice are the various wants of every individual whiles scale of preference is the list of unsatisfied wants arranged in order of important priority
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choice refers to the act of selecting from alternatives or it refers to the act of choosing one thing instead of the other but Scale of preference refers to the listing of wants in order of important by providing the pressing need on top and the less pressing need at the bottom
Ebenezer
four cardinal types of demand
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they are the derived,complementary,substitute and supplementary demands
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What is equilibrium
Khan
hi
Ayesha
hello
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equilibrium is the state of balance where there is no tendency for a change to occur.
Kini
Derived, competitive, complementary and composite demands
Aziz
Hi
MP
why is economics said to be a dismal science?
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hi friends
Ibe
hello
Owusu
fyn
Ibe
fyn what is meaning of monopoly
Ibe
monopoly is when a particular good is produced without competing with any other good.
Ebenezer
good evening
Tweneboah
draw the market demand curve from the individual demand curve?
Shilpa
With the aid of diagrams,compare the short run equilibrium positions of a perfect competitor and an imperfect competitors