Questions and Answers
What is the primary objective of a firm in determining the least-cost combination of inputs?
To minimize costs and maximize profits
What is the key benefit of understanding the least-cost combination of inputs?
Achieving efficiency and cost-effectiveness
What is an example of a strategic combination of inputs in production?
Using a combination of automated machinery and skilled labour to produce cars
What enables firms to identify cost-saving opportunities in their production processes?
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What is a result of identifying the least-cost input combination?
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What are the typical inputs that a firm uses to produce a given level of output?
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What is the main goal of businesses using the least-cost combination of inputs?
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What is the result of using the least-cost combination of inputs in a production process?
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What is a major obstacle in implementing the least-cost combination of inputs?
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What is the key in implementing cost reduction strategies?
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What type of operations results in irreversible changes and increase a product's value?
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What is the main effect of efficient resource allocation at the macroeconomic level?
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What is the result of a firm's inability to replace between inputs due to technological constraints?
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What is the main goal of cost reduction strategies?
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What is a common difficulty in implementing the least-cost combination of inputs?
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What is the effect of a clothing factory using a large number of workers with simple sewing machines?
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Study Notes
Least-cost Combination of Inputs
- The optimal blend of production factors to produce a given level of output at the least possible cost, typically includes labour, capital, land, and raw materials.
Importance of Least-cost Combination
- Enables businesses to optimize the use of their resources and reduce waste.
- Helps businesses identify cost-saving opportunities in their production processes.
- Critical in achieving efficiency and cost-effectiveness in any production process.
Why Businesses Use Least-cost Combination
- A strategic decision to minimize costs and maximize profits.
- Helps create a well-balanced and cost-effective mix of resources for production.
- Controls costs and increases competitiveness in the market.
Example of Least-cost Combination
- A clothing factory uses a mix of labour and capital (simple sewing machines or advanced automated sewing machines) to produce the desired number of clothes at minimized cost.
Process in Determining Least Cost Combination
- Involves careful analysis of available resources, prices, and production technology.
- Requires in-depth understanding of economic principles and application of optimization techniques.
Difficulties in Implementing Least Cost Combination
- Constantly changing market prices affect the cost-minimizing ratio of inputs.
- Limited availability of inputs can impede achieving the perfect combination.
- Technological constraints may limit a company's ability to substitute between inputs.
Strategy to Reduce Production Cost
- Analyze and modify the production process to optimize it.
- Eliminate unnecessary operations and improve necessary operations.
- Categorize operations into productive, providing, and corrective types to optimize the process.
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