ESSAY: Supply Production Cost

Use the “Supply and Production Costs,” worksheet and the economic concepts discussed in Chapters 6 and 7 of Economics of Health and Medical Care to answer the following questions. You will use the table found in the worksheet to calculate and fill in the blanks for the table in Question 5.
Explain the difference between explicit and implicit costs of production.
Explain the reasoning behind the U-shaped, long-run, average cost curve.
Explain the law of diminishing marginal returns.
Describe economies and diseconomies of scale.
Given the following data, calculate the total fixed, total variable, and marginal costs at each level of production.
APA style is not required, but solid academic writing is expected.
This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion.

ANSWER

Production is an economic term that refers to the methods and processes used by an individual or a firm to convert inputs such as raw materials, ideas, information, subassemblies, or knowledge into goods or services (Mankiw, 2014). In economics, supply is an important concept used to describe the amount of resources that workers, producers, firms, financial providers, or any other economic agents are able and willing to bring to the market (Perlman, 2016). Therefore, supply may be defined in terms of time, raw materials, currency, or any other valuable and scarce resources that can be used as final product or in the production of secondary goods. Costs that relate to the production of goods include general overhead, tax, and expenses incurred to acquire raw materials, labor, and consumable supplies. Economics of production and supply focus on a profit-maximizing quantity that a firm is willing to produce and sell (Mankiw, 2014). A firm’s level of production…

Explicit and Implicit Costs of Production

Explicit costs of production are actual costs incurred and recorded in the books of account. They are direct costs that involve the outflow of cash from the business. The costs are incurred in the normal course of business, including the production process as well as paying for expenses (Mankiw, 2014). Examples include payments for rent, electricity, postage, salary and wages, stationery, services from others, maintenance, raw materials, bills, among other expenses (Perlman, 2016). Unlike implicit cost, explicit costs are easier to ascertain, classify, record, and account for. In addition, the costs involve money-based transactions hence important in financial…

Implicit costs of production, on the other hand, are implied or notational costs of a business. It is the opportunity costs foregone by the business while considering the alternative courses of action (Mankiw, 2014). Therefore, unlike explicit costs, implicit costs do not involve any outflow of cash. Implicit costs are also indirect and deal with intangibles. Therefore, it is not easy to measure them (businesses use an estimate). In addition, implicit costs are not easy to record, report or account for since there have no paper trail/records. Some examples…

U-Shaped, Long-Run, Average, and Cost Curve The average costs are higher at low levels of production since both the Average Variable (AVC) Costs and Average Fixed Costs (AFC) are high. However, as the firm increases the output levels, the average costs decrease significantly due to the continued decline in AVC and AFC. This results from availability of factors of production and the reaping effect of internal economies of scale (Mankiw, 2014). The Average Costs continue to decrease until the level of output reaches the optimum point. Once the output continues to increase beyond the optimum level, AC starts to rise. In this case, rising AVC outweighs falling AFC. The rise…