{"id":1143,"date":"2015-05-11T23:06:16","date_gmt":"2015-05-11T23:06:16","guid":{"rendered":"https:\/\/courses.candelalearning.com\/masterymicro1xngcxmaster\/?post_type=chapter&p=1143"},"modified":"2016-03-21T19:13:39","modified_gmt":"2016-03-21T19:13:39","slug":"why-it-matters-8","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/atd-herkimer-microeconomics\/chapter\/why-it-matters-8\/","title":{"raw":"Why It Matters: Production","rendered":"Why It Matters: Production"},"content":{"raw":"

Why analyze the relationship between inputs used in production, and the resulting outputs and costs?<\/h2>\r\nWe are changing gears in this module, which is the first of five dealing with the theory of the firm. The theory of the firm seeks to understand what motivates firms to make the operating decisions that they do. This module, focusing on production and costs (which means the cost of producing a given quantity of output), provides the necessary background information to do that.\r\n\r\nThis module has a lot of detail, tables and graphs, but there are really two main key takeaways:\r\n
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  1. There are several different ways to look at production and costs, just like there are several different ways to look at a student\u2019s learning in a course. Students can be asked to write an essay or do a class presentation on a topic. These are two ways of trying to assess the same thing, student learning.<\/li>\r\n\t
  2. There is an inverse relationship between production and costs. The harder it is to produce something, for example, the more labor it takes, the higher the cost of producing it, and vice versa.<\/li>\r\n<\/ol>\r\nThis relationship is illustrated in the following video:\r\n\r\nhttps:\/\/youtu.be\/iD6mOxILbjQ\r\n\r\nThe graphs you will encounter in this module are important because they\u2019ll help you keep the different concepts, like production versus costs or different types of cost, straight. Keep track of what\u2019s on the horizontal and vertical axis and you\u2019ll know what\u2019s going on. If employment (or L) is on the horizontal axis, you\u2019re looking at some kind of a product curve. If output (or Q) is on the horizontal axis, you\u2019re looking at some kind of cost curve.\r\n\r\n[caption id=\"attachment_2077\" align=\"alignnone\" width=\"702\"]\"Collage<\/a> \"Bread Collage\". Amazon's Front Door <\/a>by Robert Scoble, CC-BY<\/a>. Tesla Autobots<\/a> by Steve Jurvetson, CC-BY<\/a>. Road Building<\/a> by Elvert Barnes, CC-BY-SA<\/a>. Baking Bread<\/a> by Christian Guthier, CC-BY<\/a>. House framing<\/a> by Ryan, CC-BY-SA<\/a>.[\/caption]\r\n\r\nStudents sometimes misunderstand the concept of technology. In an economics context, technology does not mean high tech, or having to do with computers or the internet. Rather, technology means the way, the process by which inputs are used to produce outputs. A different process means a different technology.\r\n\r\nHere\u00a0are some\u00a0questions to think about: How does an improvement in technology affect production and costs? How, for example, would it affect the graphs? We\u00a0will answer this at the end of the module, once you have the tools.\r\n\r\nOne more thing: \u00a0Do not confuse cost with price. This module is about firms. From the firm\u2019s perspective, cost is what they pay for the inputs necessary to produce the product. Price is what the firm receives for selling the product. Thus, cost is a negative and price is positive; they are not the same thing.\r\n