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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.

Total cost with rising labor costs
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.

Questions & Answers

Adam Smith's definition of economics
Sylvia Reply
what is economic deficit
prices of Quality demanded is equal to Quality supplied
it's quantity demand and quantity supplied that's called equilibrium
they deal With prices
define the elasticity
explain different types of elasticity
oops 😬 you are right you talk about quality I tell about quantity
elasticity is the measurement of the percentage change of one economic variable in response to a change in another
Cross Elasticity of Demand (XED) Income Elasticity of Demand (YED) Price Elasticity of Supply (PES)
anything else?
How does one analyze a market where both demand and supply shift?
Gabriel Reply
That's equilibrium market
but an equlibrum can appear twice on the same market... both in Movement along the Demand/supply curve of shift in the Curve
I Mean on the same curve..
how can consumer surplus be calculated
How can we analyze the effect on demand or supply if multiple factors are changing at the same time—say price rises and income falls? 
Gabriel Reply
because of fall of income, less will be demanded and much will be supply as a result of price rises. Rise in price always motivate new supplier to enter into the system. But it only possible in the short run
yeah.. I think Ceteris Paribus is applied in this case
that is the law of Demand is Inversely related to the law of Supply... so that mean a positive change in demand may produce a negative return to supply I think.
what are the difference between Wants and Needs
Gabriel Reply
When the price is above the equilibrium, explain how market forces move the market price to equilibrium. Do the same when the price is below the equilibrium.
economic problems
yeah please Explain
I don't know this is my question
no it was a mistake...😂😂 can you explain how Wants and needs differs 😌
wants is what human desire but might not need them, human want are mostly articles of ostentatious while need is what human must get to live e.g inferior goods
what's equilibrium price
equilibrium prices is a situation whereby the price of goods supplied equates to the demand
this whereby the prices of quality demanded is equivalent to quality demanded
wants are numerous desire man that man can do without if not purchased e.g. cosmetic while need are desires that you cannot do without e.g. food
equilibrium price is that level of output were quantity demanded is equal to quantity supplied
what are the importance of studying economics
Bherla Reply
To know if the country is growing or not through the country's GDP
to manage our resources
compare base years GDP and the current years GDP
To tell whether a country is growing there are many factors to be considered not necessarily only the GDP due to weaknesses of GDP approach
What is the law of demand
Yaw Reply
price increase demand decrease...price decrease demand increase
ıf the price increase the demand decrease and if the demand increase the price decrease
all other things being equal, an increase in demand causes a decrease in supply and vice versa
how is the economy of usa now
What is demand
jude Reply
Demand is the quantity of goods and services a consumer is willing and able to purchase at various prices over a given period of time.
Okay congratulations I'll join you guys later .
demand is the quantity and quality of goods and services a consumer is willingly and able to purchase at a particular price over a given period of time.
calculate elasticity of income exercises
If potatoes cost Jane $1 per kilogram and she has $5 that could possibly spend on potatoes or other items. If she feels that the first kilogram of potatoes is worth $1.50, the second kilogram is worth$1.14, the third is worth $1.05 and subsequent kilograms are worth $0.30, how many kilograms of potatoes will she purchase? What if she only had $2 to spend?
Susan Reply
cause of poverty in urban
DAVY Reply
QI: (A) Asume the following cost data are for a purely competitive producer: At a product price Of $56. will this firm produce in the short run? Why Why not? If it is preferable to produce, what will be the profit-maximizing Or loss-minimizing Output? Explain. What economic profit or loss will the
Falak Reply
what is money
DAVY Reply
money is any asset that is generally acceptable for the exchange of goods and for the settlement of debts
money is a generally acceptable asset used for the settlement of debt and exchange of goods and services,its also flexible
what is economic
Stephen Reply
economics is the study of ways in which people use resources to satisfy their wants
what is Price mechanism
Dhany Reply
what is Economics
The study of resource allocation,distribution and consumption.

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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