INDUS ECON - Production and Resource Allocation

This process transforms resources into goods and services that have considerable value (utility) to consumers.

Production

In the production process, these resources are also referred to as ___ while the goods and services created are called ___.

Inputs and outputs

Refers to the greatest output that can be created given an exact number of inputs. It is expressed as: Q = f (land, labor, capital)

Production function

This is a function of land resources, which may also refer to raw materials.

Output (Q)

A manpower source.

Labor

Includes equipment, machinery, and other capital goods.

Capital

These do not change as output increases. (ex: land resources)

Fixed inputs

These change as output increases. However, in the long run, all inputs are variable.

Variable inputs

Where a firm adjusts only its variable input. (1 to 5 years)

Short run

Where all inputs are variable. (21 years and above)

Long run

Firms operate more with machine, land, and equipment over labor (capital input is greater than labor input)

Capital Intensive

Firms operate more with labor (labor input is greater than capital input)

Labor Intensive

Refers to actual or real expenses incurred in the production of goods and services.

Cost

Also known as the fixed input; costs that do not change as the output increases.

Total Fixed Cost (TFC)

Refers to variable input; costs that change as the output iincreases.

Total Variable Cost (TVC)

Are computed by simply adding the total variable costs and total fixed costs.

TC = TFC + TVC, Total Cost

The amount of money received by firms from selling goods and services.

Revenue

It is the difference between total revenue and total costs.

Profit, expressed as TP = TR-TC

Refers to the additional revenue generated by selling additional unit of a good.

Marginal Revenue

Assigning available resources to specific uses among many possible alternatives.

Resource Allocation

Goods are ___ objects that satisfy people’s needs and wants, ex. food, cars, books, computers, houses, etc.

Physical (Tangible)

Services are ___ activities that satisfy human’s needs and wants such as education, health care, food delivery, car repair, banking, etc.

Non-physical (intangible)

Involves making the best use of resources and avoiding waste.

Economic efficiency

Interpreted as greater quality and less inequality in the amount of income received by individuals in a society.

Equity

Procurement and physical transmission of material through the supply chain, from suppliers to customers.

Logistics