ch4 - McGill Faculty of Engineering MIME 310 Engineering...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
McGill Faculty of Engineering MIME 310 Engineering Economy Chapter 4 – Production and Cost Analysis Technical efficiency is an important contributor to onomic efficiency Outline economic efficiency. Section 1: Economics of Production • Combining Technology (production function) and Economics ost function) (cost function) • Break-Even Analysis (production rate required to generate profit) • Generalized Cost Functions (non-linear) heory of the Business Firm (micro- onomic issues) Theory of the Business Firm (micro economic issues) Section 2: Minimisation of Project Costs eneralized Relationship • Generalized Relationship • Typical Examples 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
McGill Faculty of Engineering MIME 310 Engineering Economy Section 1: Combining Technology and Economics Use of economic principles in the design and operation of stems and production processes systems and production processes. Objectives: • Minimize design costs inimize production costs • Minimize production costs • Maximize profits in a process with tablished production capacity i.e. optimization established production capacity 2
Background image of page 2
McGill Faculty of Engineering MIME 310 Engineering Economy Section 1: Combining Technology and Economics Cost Function Total cost associated with the production of a particular amount of goods or services over a specific period of time. Total Production Costs = Total Fixed Costs + Total Variable Costs TC = FC + VC FC Associated with inputs that do not vary over the short-term VC Associated with inputs that vary over the short-term, i.e. e a function of the production rate (Q) are a function of the production rate (Q) 3
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
McGill Faculty of Engineering MIME 310 Engineering Economy Section 1: Combining Technology and Economics Cost Function Average cost (of production): Q TC AC Average fixed costs: FC fc (variable) Q VC c verage variable costs: ariable or fixed) Q vc Average variable costs: (variable or fixed) At a given production rate, AC = fc + vc 4
Background image of page 4
McGill Faculty of Engineering MIME 310 Engineering Economy Section 1: Combining Technology and Economics Cost Function If TC is linear, i.e. TC has a constant slope equal to MC, then: C = FC + MC • TC FC MC Q As vc = VC / Q, vc = MC • Q / Q = MC 5
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
McGill Faculty of Engineering MIME 310 Engineering Economy Section 1: Combining Technology and Economics Revenue Function Revenue associated with the sale of a particular amount of goods or services over a specific period of time. • Amount sold assumed to be amount produced. enerally assumed that perfect competition exists in market • Generally assumed that perfect competition exists in market place, i.e. the selling price is constant , independent of production rate. Thus, TR = p • Q p: unit price (AR = MR = p) Q: production rate per period 6
Background image of page 6
McGill Faculty of Engineering MIME 310 Engineering Economy Chapter 4 – Production and Cost Analysis Outline Section 1: Economics of Production • Combining of Technology (production function) and Economics gg y ( p ) (cost function) • Break-Even Analysis (production rate required to generate profit)
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/22/2010 for the course MIME MIME 310 taught by Professor Jassim during the Winter '09 term at McGill.

Page1 / 45

ch4 - McGill Faculty of Engineering MIME 310 Engineering...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online