Production and Costs in the Short Run (mod 4 case)

Economics Module 4 Case
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1. There are numerous costs that producers of various products and services encounter in their operations aiming at making profits and expanding their activities. These costs are categorized in the short-run and long-run depending on their nature and other features (Mukherjee et al., 2003; Tisdell & Hartley, 2008). These costs are based on the economic notion that in the short-run, the firm is faced with two types of costs, which are fixed and variable costs respectively. These indicate that there are those aspects whose costs can be adjusted while there are those that remain fixed at least during this period.
According to Baumol Blinder (2012), the long-run is characterized by costs that are variable in nature in the sense that the firm has enough time to weigh its options regarding factors of production to facilitate productivity, efficiency, and profitability. Some of the costs that a firm faces include total costs, average total costs, average variable costs, and average fixed costs among others depending on the nature and features of the activities. Total costs refer to the entire amount of costs incurred in facilitating production services. It entails the additional of all costs incurred without leaving out any aspect.
Total average costs refer to the summation of all the costs incurred divided by the number of units of products produced. Variable costs refer to the costs incurred by employing variable factors of production. Variable costs are those whose quantities can be altered to suit the requirements of the production process (Nicholson & Snyder, 2012). Fixed costs are those attached to long-term and permanent assets like equipments and land at least in the short-run. Average fixed costs are obtained after dividing the summation of fixed costs by the number of fixed items in question. Average varied costs refer to the quotient of varied costs and the number of items summing up the variable factors of production. Nicholson & Snyder (2012) argue that marginal cost refers to the cost that a firm has to incur in its attempt to produce an extra unit of output.
2. The firm will choose to alter the size of its plant under the following circumstances: a) when the costs of production are exceeding the revenues being registered (Sexton, 2013). It follows that the firm will have to come up with a mechanism that will reduce the amount of varied factors of production to minimize costs of production. B) When the level of market of competition in the market is high there shall be need to alter the size of the plant. It is evident that when marginal cost, MC=Average varied cost, AVC, the firm is operating in a danger zone economically and when this is coupled with increased competition in the market then it follows that the firm has to reduce the size of its plant. Reducing the size of the plant shall reduce the costs incurred to produce the products in quest...