Matthew Al Uzziah A.
Gabe
BUS 1103-01 – Assignment Activity Unit 5
Assignment Title: Cost and Production Analysis: A Case Study of
GreenHarvest Farms'
1. Production, Cost, Revenue, and Productivity
Production: Production refers to the process of transforming inputs (such as
labor, capital, and land) into outputs (organic fruits and vegetables) to meet
market demand. For GreenHarvest Farms, production involves cultivating and
harvesting organic produce to supply to the market.
Cost: Cost represents the expenses incurred by the company in the
production process. It includes both fixed costs (such as land, machinery)
and variable costs (such as labor, seeds). Understanding costs is crucial for
determining profitability and making production decisions.
Revenue: Revenue is the income generated from selling the company's
products. It is calculated by multiplying the quantity sold by the price per
unit. Revenue is essential for assessing the company's financial performance
and sustainability.
Productivity: Productivity measures the efficiency of the production process
by evaluating the output generated per unit of input. It is calculated by
dividing total output by total input. Higher productivity indicates better
utilization of resources and increased efficiency.
Each of these factors contributes to GreenHarvest Farms' overall
performance and profitability. Efficient production processes (high
productivity) help minimize costs, leading to higher profitability. Maximizing
revenue through effective pricing strategies also enhances profitability.
Therefore, optimizing production, managing costs, and maximizing revenue
are critical for the company's success.
2. Short-Run Analysis
Average Cost (AC): AC is calculated by dividing total cost (TC) by the quantity
produced (Q). For example:
AC = TC / Q
Marginal Cost (MC): MC represents the additional cost incurred by producing
one more unit of output. It is calculated by subtracting the total cost of the
previous level from the total cost of the current level. For example:
MC = ΔTC / ΔQ
Average Revenue (AR): AR is the revenue per unit of output and is calculated
by dividing total revenue (TR) by the quantity produced (Q). For example:
AR = TR / Q
Marginal Revenue (MR): MR is the additional revenue generated by selling
one more unit of output. It is calculated by subtracting the total revenue of
the previous level from the total revenue of the current level. For example:
MR = ΔTR / ΔQ
Profit or Loss: Profit or loss is determined by subtracting total cost from total
revenue. If total revenue exceeds total cost, the company earns a profit;
otherwise, it incurs a loss.
3. Economies or Diseconomies of Scale
Economies of scale occur when the average cost of production decreases as
the level of production increases. In contrast, diseconomies of scale occur
when the average cost of production increases with higher levels of output.
To determine whether GreenHarvest Farms experiences economies or
diseconomies of scale, we analyze the relationship between average cost
(AC) and the level of production (Q). If AC decreases as Q increases, the
company benefits from economies of scale. Conversely, if AC increases with
higher levels of production, the company faces diseconomies of scale.
4. Recommendations for Short-Run Profitability
Based on the profit or loss figures at each level of production, GreenHarvest
Farms should consider adjusting its production level to maximize profitability.
If the company is experiencing losses, reducing production may help
minimize costs and improve profitability. Conversely, if the company is
earning profits, increasing production to meet market demand can lead to
higher revenues and profitability.
Additionally, the company should focus on cost-saving measures, such as
optimizing resource utilization, negotiating better supplier deals, and
streamlining operations to reduce expenses. Implementing efficient
production techniques and investing in technology can also enhance
productivity and reduce costs.
Ultimately, GreenHarvest Farms should conduct a comprehensive cost-
benefit analysis to determine the optimal production level and make
informed decisions to improve short-run profitability. Regular monitoring of
financial performance and adjusting strategies accordingly will ensure the
company's sustainability and success in the agricultural industry.
