Study Aids:
Click the Study Aids tab at the bottom of the book to access your Study Aids (usually practice quizzes and flash cards).
Study Pass:
Study Pass is our latest digital product that lets you take notes, highlight important sections of the text using different colors, create "tags" or labels to filter your notes and highlights, and print so you can study offline. Study Pass also includes interactive study aids, such as flash cards and quizzes.
Highlighting and Taking Notes:
If you've purchased the All Access Pass or Study Pass, in the online reader, click and drag your mouse to highlight text. When you do a small button appears – simply click on it! From there, you can select a highlight color, add notes, add tags, or any combination.
Printing:
If you've purchased the All Access Pass, you can print each chapter by clicking on the Downloads tab. If you have Study Pass, click on the print icon within Study View to print out your notes and highlighted sections.
Search:
To search, use the text box at the bottom of the book. Click a search result to be taken to that chapter or section of the book (note you may need to scroll down to get to the result).
View Full Student FAQs
Chapter 8 Production and Cost
Start Up: Street Cleaning Around the World
It is dawn in Shanghai, China. Already thousands of Chinese are out cleaning the city’s streets. They are using brooms.
On the other side of the world, night falls in Washington, D.C., where the streets are also being cleaned—by a handful of giant street-sweeping machines driven by a handful of workers.
The difference in method is not the result of a greater knowledge of modern technology in the United States—the Chinese know perfectly well how to build street-sweeping machines. It is a production decision based on costs in the two countries. In China, where wages are relatively low, an army of workers armed with brooms is the least expensive way to produce clean streets. In Washington, where labor costs are high, it makes sense to use more machinery and less labor.
All types of production efforts require choices in the use of factors of production. In this chapter we examine such choices. Should a good or service be produced using relatively more labor and less capital? Or should relatively more capital and less labor be used? What about the use of natural resources?
In this chapter we see why firms make the production choices they do and how their costs affect their choices. We will apply the marginal decision rule to the production process and see how this rule ensures that production is carried out at the lowest cost possible. We examine the nature of production and costs in order to gain a better understanding of supply. We thus shift our focus to firmsOrganizations that produce goods and services., organizations that produce goods and services. In producing goods and services, firms combine the factors of production—labor, capital, and natural resources—to produce various products.
Economists assume that firms engage in production in order to earn a profit and that they seek to make this profit as large as possible. That is, economists assume that firms apply the marginal decision rule as they seek to maximize their profits. Whether we consider the operator of a shoe-shine stand at an airport or the firm that produces airplanes, we will find there are basic relationships between the use of factors of production and output levels, and between output levels and costs, that apply to all production. The production choices of firms and their associated costs are at the foundation of supply.