Production Economics and Decisions part 2

According to Bail et al. (2010), relevant costs are simply known as avoidable or differential costs. Relevant costs eliminate data that may impact the decision-making processes of the organization with this being said, the scenario of Katrina’s Candies decisions concerning revenue should be taken into consideration. There are no fixed factors of production in long run costs contrary short run costs which possess fixed factors and variables that impact production. When there is a combination of outputs by an organization with high production, long run costs are efficient sustained. Variables costs will change with the output. For this scenario, costs of raw materials could be considered an example. Short run costs will increase or decreased based on the variable costs as well as the frequency of production. If managed successfully, the organization can reach the long run costs goals.

Considering the scenario example of the Average Total Costs wherein the example company had three machines and determined the amount of labor required to achieve optimal output, if the company were to use their increased productivity to fund an additional production machine, would they need to start from the beginning after purchase and operation with actual output data or could the model be adjusted to determine the necessary labor needed to produce the minimum average total cost?