L4 Production Factors PDF
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This document provides an overview of production factors, economic theory, and business theory in an organizational context. It defines different production factors like labor, capital, and land, and examines concepts like marginal productivity, allocative efficiency, and technological efficiency. The document delves into the relationship between inputs (production factors) and outputs (finished goods).
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L4: Production factors ECONOMIC THEORY VS. BUSINESS THEORY ❖ different production factors ❖ corporate economics = applied microeconomics Economic theory Business-economic theory Labor Management labor - cost of fixed as...
L4: Production factors ECONOMIC THEORY VS. BUSINESS THEORY ❖ different production factors ❖ corporate economics = applied microeconomics Economic theory Business-economic theory Labor Management labor - cost of fixed assets Labor Executive labor (workforce, salary) Capital Material - material time Capital and land Long-term assets - costs of fixed assets SYSTEM OF PRODUCTION FACTORS IN AN ORGANIZATION The optimal combination of production factors is determined through marginal productivity: 𝑀𝑎𝑟𝑔𝑛𝑎𝑙 𝑝𝑟𝑜𝑑𝑢𝑐𝑡1 𝑀𝑎𝑟𝑔𝑛𝑎𝑙 𝑝𝑟𝑜𝑑𝑢𝑐𝑡2 𝑀𝑎𝑟𝑔𝑛𝑎𝑙 𝑝𝑟𝑜𝑑𝑢𝑐𝑡3 𝑃𝑟𝑖𝑐𝑒1 = 𝑃𝑟𝑖𝑐𝑒2 = 𝑃𝑟𝑖𝑐𝑒3 Marginal return = Marginal cost PRODUCTIVITY AND EFFICIENCY PRODUCTIVITY ❖ ratio of outputs and inputs (factors of production) used in the production process ❖ natural units that are hard to measure ❖ measuring not value, but quantity EFFICIENCY ❖ productivity with valued units of inputs and outputs ❖ the value is measured by balance sheets Relationship between inputs and outputs: a. allocative (Pareto) efficiency - fair allocation of resources b. productive efficiency - maximum output without increasing inputs, production proceeds, and the lowest possible average cost A system can be allocatively efficient without being productively efficient, and vice versa. Concepts of efficiency: a. economic efficiency - producing goods at the lowest cost influenced by prices of production factors b. technological efficiency - occurs when it is impossible to increase output without increasing inputs engineering approach something can or cannot be done Economically efficient processes are always technologically efficient; the reverse is not always true. SYSTEM OF PRODUCTION FACTORS IN AN ORGANIZATION (accounting perspective) Assets in an organization: a. current assets - receivables, stocks b. long-term assets - long-term tangible, intangible financial assets ❖ inputs (production factors like long-term assets and materials) combine to create outputs (finished goods) ❖ money - a special type of good that mediates the economic activity of an organization - neither an output nor input 1.
