"Production Economics and Decisions" Please respond to the following:
From the scenario for Katrina's Candies, determine the relevant costs for the expansion decision, and distinguish between the short run and the long run costs. Recommend the key decision-making criteria that Katrina's Candies should use for expansion decisions in the short run and in the long run. Determine under what conditions, a company should or should not continue to produce the good or service.
It is insightful to compare the production economics of old-economy companies that produce things to new-economy companies that produce information. Things, when sold, the seller ceases to own. Information, when sold, the seller can sell again. Things are replicated through expensive manufacturing processes, whereas information is replicable at almost zero incremental cost. Things exist in one location. Information can exist simultaneously in many locations.
Managers are required to make resource allocation decisions about production operations, marketing, financing, and personnel. Although these decisions are interrelated, it is useful to discuss each of them separately. Production decisions determine the types and amounts of inputs-such as land, labor, raw and processed materials, factories, machinery, equipment, and managerial talent-to be used in the production of a desired quantity of output.
The production manager's objective is to minimize cost for a given output or, in other circumstances, to maximize output for a given input budget. First, we analyze the choice of a single variable input with fixed input prices. Later, we analyze the optimal multi-input combination and introduce the concept of returns to scale.
The economic theory of production offers a conceptual framework to assist managers in deciding how to combine most efficiently the various inputs needed to produce the desired output (product or service), given the existing technology.
Technology consists of available production processes, equipment, labor and management skills, as well as information-processing capabilities.
Least-cost production analysis is often applied by managers and plant engineers in deciding the operations plans of the company.
Reference
McGuigan, James R. (2014). Managerial Economics: Applications, Strategies and Tactics, 13th Edition. [VitalSource Bookshelf Online].Retrieved from https://strayer.vitalsource.com/#/books/9781305562066/