Question

Subject: Production

Required: You should select an industry that produces a quantifiable output (we are going to avoid service based industries). For the industry selected, you should identify elements that fall into two categories (fixed and variable costs) and explain why they fall into a particular category. Further you should identify inputs that impact long-run production. Write 300 words.
Please write in you own words and write appropriate answers. Write the resource link which you use in your writing.

Answer 1

I have selected an industry that makes strawberry juice and sells it in local market.

Fixed cost: This is a cost that remains fixed even if there is no production. Example- Rent for a small shop floor that I have rented to crush strawberries to crush. Also machine, Insurance that is to be paid for the shop is a fixed cost.

Variable cost: This cost changes wt change in output. Strawberries bought from local farmer, labors employed depending on season are variable costs. Quantity of strawberries bought are variable as more would be required when there is higher order and less when order is small.

Inputs that impact long-run production:

1. Choice to make juice making process labor incentive or capital incentive: If manually juice is made then production quantity will be less but product can be sold for higher price by saying that handmade juice. This will make firm to breakeven earlier

Machines will make work faster and more juice can easily be made. However, machine costs initially would be higher.

2. Location of Shop floor: If it is near the market and strawberry farms then it will certainly help in reducing transportation cost.

3. Packaging: A good quality packaging will help to build brand in medium to long term.

Reference: ellie Tregaks, Economics for IB diploma, Chapter number: 6 Theory of firms-1