impacts of costs and productivity on factor inputs

Question 1

what shapes a firms costs of production ?

Answer 1

factor prices e.g raw materials and productivity

Question 2

what do higher factor prices increase

Answer 2

production costs e.g if wages rises due to labour market conditions or changes to the national minimum wage , a firm labour costs will increase

Question 3

what do lower factor prices increase

Answer 3

reduce production costs e.g if the costs of capital decreases, possibly due to interest rate reductions that make repayments more affordable , a firms costs of production increase
firms aim to minimise costs by selecting the primal combinations of inputs that maximise output

Question 4

what does productivity measure

Answer 4

measures the efficiency with which inputs are utilised to produce output

Question 5

what does higher productivity mean?

Answer 5

means more output can be produced with the same level inputs
improved productivity lowers a firms production costs by reducing the number of inputs required to produce a given level of out put
e.g technological advancement

Question 6

what does lower productivity increase?

Answer 6

increases costs because more inputs are needed to produce the same level of output
e.g
if workers become less efficient or if capital equipment becomes outdated , firms costs of production rise