The Firm Production Cost Analysis

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Table of Contents

Introduction
Analysis
Conclusion
References

Introduction

It is generally assumed that the firm production cost is the totality of an organisations variable and fixed costs. As practice shows, this indicator is the basis for forming a price of a finished product. In other words, the firm production cost means all the fees a firm has spent on producing goods or services. In order to consider these aspects in detail, it is recommended to make a thorough examination of several reliable and trustworthy articles. This paper is devoted to a deep and comprehensive analysis of 3 articles concerning the firm production cost.

Analysis

The Article by Kharbach & Chfadi

The article focuses on the analysis of the firm production cost, appealing to a modified Hotelling model setup within logistics as an industry. It is noteworthy that the authors additionally pay attention to the consideration of linear and quadratic costs. For instance, with linear costs, substantial differentiation is stable. Accordingly, in the case of quadratic costs, the principle of maximum differentiation often applies, and profits increase.

Due to the investigation of this article, the student learned about the cases of costs based on the example of a specific field, such as logistics. As a rule, the correlation relative value of costs and customer costs is an impulse to make essential and sometimes cardinal decisions of the company regarding the strategy of activity in production (Kharbach & Chfadi, 2022). Moreover, a large set of costs and expenses indicates a significant differentiation as an equilibrium and balance for all cost structures.

The Article by Pfouts

Based on this article, it becomes clear how the theory of costs and production works in practice, considering the firm production cost. Any production is associated with the costs of raw materials, electricity, labor, equipment, or land (Pfouts, 1961). Using the necessary resources is necessary to create new benefits. All resources used in production are limited. Any of the factors of production can be used to produce various products. The resources spent on producing a particular product may be lost for producing other goods.

Due to this circumstance, any costs for producing any product are alternative. Therefore, manufacturers are constantly forced to consider how much it will cost them to produce a particular good. Prices include the number of funds allocated to pay for all types of raw materials, materials, labor, and services spent on producing a particular product. Moreover, to solve several financial problems, it is recommended to use the Kuhn-Tucker theorem.

The Article by Randall & Ulrich

The study of this article gave knowledge about the variety of products and the effectiveness of the company. In addition, diversity provides for accounting for both production and mediation costs (Randall & Ulrich, 2011). In particular, it is essential to competently and correctly analyze the market in order to form explicit opinions and judgments, which are based, among other things, on the idea of the firm production cost.

The variety of products is primarily associated with the structure of supplies within the framework of production costs and the costs of market intermediation. Diversity in production is the key to efficiency and productivity; this further determines financial strategies in relation to the supply chain and product range. It is important to remember that greater diversity largely determines the effectiveness of a company in the economic aspect.

Conclusion

In conclusion, the analysis of the articles presented above made it possible to deepen and systematize knowledge about the firm production cost, especially based on concrete examples and in relation to several relevant elements. It became known that the companys total costs, equal to the sum of its fixed and variable costs, are determined by specific criteria. Total costs increase as output increases. The prices per unit of goods produced are in the form of average fixed expenses, variable costs, and total costs.

References

Kharbach, M., & Chfadi, T. (2022). The original hotelling model with linear and quadratic firms logistics costs. PLoS One, 17(10), pp. 1-11. Web.

Pfouts, R. W. (1961). The theory of cost and production in the multi-product firm. Econometrica (pre-1986), 29(4), pp. 1-9. Web.

Randall, T., & Ulrich, K. (2001). Product variety, supply chain structure, and firm performance: Analysis of the U.S. bicycle industry. Management Science, 47(12), pp. 1588-1604. Web.

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