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Production

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Jeremy Mai

on 29 March 2016

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Transcript of Production

PRODUCTION
The processes and methods used to transform tangible inputs and intangible inputs into goods or services.
The inputs that are used in the production of goods or services in the attempt to make an economic profit
Resources
Involves
Specialization
Due to scarce resources,
we try to increase...
Productivity
Production
Process

1
2
3
Resources are...
and...
Goods
Services
Creates...
define
define
Land
Labour
Capital
Entrepreneurship
Primary
Secondary
Tertiary
Primary
Secondary
Tertiary
Define
The complete process of making goods and services available to the consumer
Works close to the land
e.g Cutting down trees
Produces
Staple Goods
e.g. Timber
Manufacture Staple Goods
e.g A Carpenter
Produces
Finished Goods
e.g. A desk
The link between the producer and the consumer
e.g Wholesaler
Channels of
Distribution
Produces
Service
e.g. Shipping
Direct
Indirect
Producers
Carried out by
In order to maximize profits,
they attempt to create...
Innovations
Inventions
The process of making changes and improving an existing product, process or service
the creation of a product or introduction of a process for the first time
e.g. Apple's
computer systems
e.g. The first possible patent connected to mechanical sewing was a 1755 British patent issued to German, Charles Weisenthal
Case study: Tucker
The Lightbulb
Invention:
The
first electric light
was made in 1800 by
Humphry Davy
, an English scientist.
Thomas Alva Edison
experimented with thousands of different filaments to find just the right materials to glow well and be long-lasting. Edison eventually produced a bulb that could glow for over 1500 hours.
Thomas Edison is usually credited with the invention of the light bulb, but the famous American inventor wasn't the only one who contributed to the development of this revolutionary technology
Innovation:

In 1903, Willis R. Whitney invented a treatment for the filament so that it wouldn't darken the inside of the bulb as it glowed.
In 1910, William David Coolidge
invented a tungsten filament

which lasted even longer than the
older filaments.

Profit
hope to achieve a...
The financial benefit that is realized when the amount of revenue gained from a business activity exceeds the total expenses needed to sustain the activity
Define
determined by...
determined by...
Total Revenue
Total Cost
Total cost can be calculated by adding up all your expenses, which include Fixed and Variable Cost
Total revenue can be calculated by multiplying the quantity of goods sold by the price of each good
TR= P x Q
For example
Ms.Rine's Math Tutoring Service
If Ms.Rine offers a tutoring service
for
50$
per session and
16
students sign up for it.

Her total revenue for each session
will be
50
(P)x
16
(Q)=
800(TR)
TC= TFC+TVC
includes
includes
Fixed Costs
Variable Costs
In order to increase
increase profit, one can...
Increasing Revenue
Lowering costs
Costs that
do not
vary with
output changes

Costs that
do
vary with
output changes

In order for Mr.Rine's tutoring service to operate, she has to pay for
fixed fee of 200$ as rent for using the classroom
In addition to the rent she has to pay, she also needs to purchase pens, rulers and notebooks for
each student.
Used to calculate
Marginal Costs
the cost to produce
one more
unit
MC= TC/ Q
Profit is calculated by...
Total Revenue-Total Cost
P
=
TR
-
TC
Connects buyers to the businesses providing the goods or services
The business sells to an intermediary who then sells the good or service to the consumer
A
B
e.g. A bakery, farmers market
A
B
C
e.g. importers, wholesalers, retailers
Includes
Includes
Includes
Includes
The activities we engage in and sell to others
e.g. Medical, Kung Fu Classes
the concrete, tangible products we manufacture
e.g. Clock, Pencils, Computer
Consists of...
Free Goods
Economic Goods
Substitute Goods
Complementary Goods
No Payment to Obtain due to sufficient supply for every and no scarcity
e.g. The air we
Breathe in
Payment to obtain due to a limited supple and scarcity exists
e.g. Fish and Oil
goods that can replace each other,due to change, in use or consumption
e.g Pencils and
Pens
A good that is used in conjunction with another good or service.
e.g. Pancakes
And Maple
Syrup
defined as
ALL Natural Resources used to produce goods and services
Income is gained by
Rent
Usually fixed in supply, especially in the short run
Therefore...
SCARCITY APPLIES!!!
Income is gain by
Interest and Dividends
define
A good produced in order to produce something else more efficiently
Usually Classified as
Capital Goods
The availability of capital resources has increased due to technological breakthrough
It is easier and cheaper to obtain
a piece of machinery now compared to
50 years ago
e.g. A Computer now
and a computer in the past

due to scarcity, we must make
Investment Decisions
Due to scarcity, The production of Capital goods have an opportunity cost. We have to decide how
much of our resources are we willing to spend
on capital investments.
In order for us to make Capital goods, we give up
consumer goods
Illustrated
Capital Goods
Consumer Goods
Capital Goods
Consumer Goods
PPF Curve
1
2
3
4
5
0
10
22
36
45
0
50
In this example, since we choose to invest our resources in 4 units of capital goods, we have to give up 40 units of consumer goods
Even though total revenues for the quarter decreased, McDonald's is still able to increase their profits due to the fact that revenue is only one of the contributors to profit

P=TR-
TC
***
based on
Country's Economic Level
How much of one Country's resources can it can "Humanely" divert into the production of Capital goods
e.g. A subsistence economy can spare very few for capital good production. They rely on consumer goods and natural resources to provide for their basic needs.

And with each
"Investment"
in capital goods, possible future
"consumption"
is increased

However, with every investment made into capital goods, it also affects the
income distribution
of the economy. The rich and poor gap widens.
Flintstones Bakery
e.g. Wilma sees that their bakery is doing well in sales and is capable of investing some of it resources into capital goods so she decides to invest 50$ in a brand new oven instead of buying more supplies to make more pies.

The investment in a new oven increases the bakery's possible future "consumption" level as it is able to bake more pies
increases
Future growth
impacts
the incentive to invest in capital goods which resources a sacrifice of present consumption
Present Cost and Future Benefits
vs
Fishing
If I can catch a total of 5 fish in one day, I have the choice to take out resources (time) that would have caught 5 fish and utilize that time to create a more efficient method of fishing, e.g. making a net, that will help you catch at least 5 fish.
defined as
the effort that people contribute to the production of goods and services
Income Takes the form of
Wages and Salaries
Quality of Labour
also considers
such as
such as
such as
Health
Motivation
Education
Can be measured with
Can be measured with
Labor Force
Everyone that is capable and willing to work
LabourForce
=
Employed +
Unemployed
Participation Rate
The percentage of working-age population who are in the labour force
P
=LF/LFpop
Consists of
Consists of
Employed
Unemployed
Labor force Population
Anyone who is over the age of 15 that is capable of working but doesnt necessarily want to work
Used to calculate
included in
Members of the labour force who do not have a job and are looking for one. People that got recently laid off of their job is also considedred to be unemployed
e.g. A student that recently graduated from college has the ability to work and wants to work but has not yet found a job
Members of the labour force who are able to work and willing to work.

Everyone that has a job
e.g. these three farmers are considered employed as they willing and able to work
added together
measured with
Unemployment Rate
Employment Rate
u=U/LF*100%
e=E/LF*100%
Case Study
In the bikini bottom, there is a total of 20 people in the labour force population .
13.5 people are working full time.

1.5 people are unemployed.

What is the
umemployment rate?
What is the
participation rate?
Given:
LFpop=20
E=13.5
U=1.5
LF= E+U
= 13.5+1.5
= 15
u=U/LF*100%
=1.5/15*100%
=10%
p= LF/LFpop
= 15/20
=75%
The imagination to see how any idea can work and the foresight to see the possibility of making a profit
**TAKING A RISK**
defined as
income takes the form of
Case Study
Tucker: The Man and His Dream
Resources
:
Tucker used
natural resources
such as steel and aluminum in the production of car and the operated with gasoline. All of his workers that helped him produce the cars in the factory are considered to be
labour resources.
Tucker also used
land resources
such as the factory where the production of his cars took place. Tucker also displayed
entrepreneurial attributes
as he had an idea to make the pre-existing car better and took the
risk
too carry out his thoughts into reality.

Mass production:
Tucker was asked to meet a quota of producing 50 cars in one year. Hearing this, he decided to operate a factory and began mass producing the cars. He achieved this by ultizing an assembly line where a small group of people
Specializied
on a specific part of the car.

Produciton Process:
Tucker's company is classfied under the
secondary production industry
. They took staple good suchs as nails, bolts, and aluminum and manufacturer it into
a car, a finished product.

Innovation:
Tucker's new and improved car offered many innovations to the pre-existing car such as safety features including the seatbelt, disc brakes, and popout windshields. He also designed the car to have the engine placed at the back of the car instead of the front.
defined as
Productivity measures the efficiency with which an economy transforms inputs into outputs
Calcualted by
OUTPUT/ INPUT
can be increased by
Examing Input Cost
Research and Development
Substitute Materials
Try to devise a way to combine input factors differently, so that the rising input costs would have less effect on the total profit
To develop a more efficient method of producing the good and/or service
Utilize a lower costing material in the produciton of the good and/or service
example
Produce proucts whose input requirements are consistent with the countries resources

e.g. Avoid trying to mass produce chocolate bars in Canada but rather in a place where alot of Cocoa beans are present and are really accessible
Creation of Cars
When making a car, the compnay can choose to incorporate more plastic materials on the car opposed to steel or aluminum since it is a cheaper option
e.g. Ms.Rine did some math and research in regards to make her wheat company more efficient and soon realizes investing in a Tractor for the workers to use in harvesting the wheat is the best option. The intial cost of the tractor is very small and is gradually diminishing as the tractor is able to harvest wheat 50 times faster than a human using their hands.
example
example
e.g. John at Nofrills comes to the realization that he is paying his workers too much for the amount of work they do. He asks all workers at nofrills to come in 5 mins early everyday and cleans a certain part of the store so he doesnt have to hire another person to clean the store
countries can be classified as
Labour intensive
Capital intensive
A process or industry that requires a large amount of labor to produce its goods or services.

A business process or an industry that requires large amounts of money and other financial resources to produce a good or service.
should try to
e.g. China and India are classfied as a labour intensive country due to the their large labour force population, they tend to focus on mass production and producing goods in great quantities
e.g. Canada is considered to be more of a capital intensive. Due to the low population of it country, we utilize more machinery in our industries, such as oil production and refining.
The Countries Scarce Resources
depends on
depends on
Case Study
Flinstones: Gravelberry Pies
Consists of
Consists of
Geographical
Division of labour
Certain land is naturally better suited for specific situations
The production process is broken into several smaller tasks
e.g. due to Florida's heat and humidity, it poses as the best climate for growing nice and juicy oranges.
e.g. however, it might not be the best place to grow hockey players due to its lack of facilities and public interest
Advantages
utilizes
Reduced time needed for training because he task is simplified. More efficient in terms of time needed to complete a task due to a very short time gaps between the production of two goods
Since training time is reduce becase the worker only needs to learn how to make a part of the product rather than the whole thing, productivity increases because the worker becomes productivty in a shorter amount of time
Reduced Training time
As someone concentrate on simplified task over and over again, they will become very skilled at performing the task. Therefore, Efficiency increases and results in a productivity gain
Practice makes Perfect
relates to
Learning Curve
A tool for measuring the effect of experience on efficiency
illustrated as
Assume a 75% learning curve
#of lots
#of units
average time
total time
1
2
4
8
16
2
4
8
16
32
600
450
337.5
253.13
189.8
1200
1800
2700
4050
6075
The number of lots has to double in order to produce a learning curve
Average time Per Unit
Culminative Quantity
Learning Curve
Disadvantages
Lost in Pride in Craftsmanship
May lose motivation due to repetition, as a results, the quality of goods may fall
Because all tasks must make up the chain of production a "break" in the chain will cause problems all through the drain
Growing Dependency
e.g. the person that is working infornt of you slows down, you must wait for them. As a result, efficiency decreases
Since the workers are trained in one specific part of production, their knowledge is limited. Therefore, their task cannot be changed easily
Loss of Flexibility in workers
Specialization requires a larger input
Therefore initially more costly and needs large production runs to be more profitable
e.g. Requires 10 people instead of 1 to be profitable
To be profitable...
1. There needs to be enough demand to accomodate production (supply)

2.A Standard Product
2.
1.
e.g. The Toronto Blue Jays need to have a arge enough fanbase demanding more Encarnation Jerseys in order for the company to have a profit to cover the large inputs and outputs of mass production
e.g. Air Jordan Nike Shoes. The shoe is made from a blueprint of the oringal model. No additional cuts are required after that and every shoe is made in the exact same way as the previous one
comes from
Mass Production
defined as
The manufacturing of large quantities of standardized products
requires
Requires a large amount of capital investment in the form of machinery and buildings
requires
Requires a large labour force
improved by
Automation
Production is becoming more automated (using machines instead of labour)
The discovery of the silicone chip
The increasing cost of labour relative to capital
Technological breakthroughs
e.g. GM
Used 4 robots in 1980
Used 34 robots in 1981
Even in fully automated systems however, humans are still necessary to centralize control and to maintain the machines
Benefits
Costs
1. The increase in productivity leads to an increase in the standard of living

2.Dangerous and boring jobs are being eliminated
e.g. bomb disposal
An increase in unemployment rates due to jobs that were held by people are now being replaced by machines
Specialization: The Flinstones family utilized
specialization
in the form of a
assembly line
to produce their gravelberry pies. When the demand for the pies rose, they increase the productivity by speeding up the production of the pies with an assembly line. Each family member and friend would be in charge of a
certain part of the production process.
Over time, work got repetitive and soon the workers loss motivation

Fred is
unemployed
and must now make an income in order to pay for goods and services. Fred learns that there is a demand for his wife's pie, and that people were willing to pay for the good (
entrepreneurship)

However, he must first meet a quota of fifty pies in order to satisfy the deal
Wilma thinks that it is an impossible task with what they have to work with. Therefore, they purchase
capital goods
in order to increase their
productivity
They also
increase their efficiency
by using their friends and pets in order to produce as many pies as possible

Production Process:
The Flinstone family partakes in the
secondary production process
as they combine multiple
staple goods
into a
finished good
. e.g. Mixing of the flour, gravelberries, eggs, etc.. and baking it into a pie
Case Study
Ford
Mass production
: For invented and utilized the
assembly line
in the production of his cars. As a results, it increased the productivity of the factory and decreased the time it takes to manufacture a car form
12 hours to 90 minutes

Employment:
Seeing that workers were quitting due to the
repetition of work and the amount they were being paid.
Ford thought of a new innovative way to maintain maximum productivity in the factory and not needing to train new employees every two weeks by almost
doubling the minimum wage of the public.
This posed as a motivation for the workers and caused them to work at
maximum capacity due to high demand for the job

Process:
The Ford Company is in the
secondary production industry
as he manufactures the cars from staple goods such as aluminum and steel.


Individuals acting out of self-interest compete for scarce resources,and because of this competition, resources are used in the most efficient and effective way. Creating more wealth for the individual and the economy.
The invisible hand
http://www.investopedia.com/terms/i/invisiblehand.asp?optm=sa_v1
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