lectur7-page9 - can be derived from the technology. Next,...

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9 9 Organize the Production Process Price reflects Quality of output from technology P output x Q output = Total Revenue T 1 Q land x P land = Cost land Q capital x P capital = Cost capital Q labor x P labor = Cost labor Q mgmt x P mgmt = Cost mgmt. Total Cost of T 1 Each alternative technology must be evaluated to determine the profit maximizing technology. First we must determine the quantity and quality of output that will be produced by each technology. The quality of the output will affect the price we can sell the output for in the market place. Price of output multiplied by the quantity of output determines the total revenue that
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Unformatted text preview: can be derived from the technology. Next, we must determine the cost of producing the output. We must determine the cost of each input (land, labor, capital, mgmt.) and sum them together to determine production cost. To determine profitability, we subtract total cost from total revenue. We would do this for each technology, then choose the technology that results in the highest profit. What we have done here is a simple budgeting exercise....
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This note was uploaded on 12/29/2011 for the course ECO 210 taught by Professor Malls during the Fall '10 term at SUNY Stony Brook.

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