Paper Example on Max Output from Production Func with Capital & Labor Inputs

Introduction

From an economic perspective, production functions create a link between the physical outputs of a process of the production process and the physical inputs used in the firm, that is, the factors of production used in the firm. The production function is a mathematical function that creates a link between the maximum amount of inputs in the firm and the approximate amount of outputs that can be obtained from the procedure. The main inputs that are calculated at this point are the capital and labor invested in the firm. The production function of a firm, therefore, describes the boundary that represents the maximum output that can be achieved from the available range of inputs (Solis & Tseng, 2018). It is through the production function that firms determine how much output should be produced by the firm by considering the pricing of the final product and the inputs that should be combined to achieve the final product. Firms have realized that as their levels of production go higher, their marginal costs increase and that the more they increase the inputs, the lesser proportional amounts of outputs they receive, hence explaining the phenomenon of diminishing returns.

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Question 1

1. Discuss the role of technology in the production function of a firm

Depending on the technology available to the firm in question, the efficiency of the labor and capital available will be determined. Therefore, if the technology in use at the firm is old-fashioned, then the organization will not be able to cover the efficiency part of the use of labor and capital at the company's disposal. On the other hand, if the organization uses more recent technology, it is possible for them to efficiently use the technology available to them and achieve the best outcomes out of their business activities (León-Ledesma & Satchi, 2019). An organization that seeks to stay ahead of their competition invests in technology so that they can maximize the factors of production at its disposal. It is also through the effective use of technology that a firm can save on costs. When a firm uses technology in their production function, they make the possibility of reducing the costs associated with labor since the effective use of technology allows for the use of minimal labor inputs in the production process. With the increased use of technology, a firm can achieve the possibility of more customers buying their products since they will be producing high-quality products.

Question 2

1. A. Discuss the impact of competition in the health care sector

With competition in the health sector, there are some benefits that the customers stand to gain from. First, the patients have a variety of health institutions from which they can get the health services. When this is done, the patients will get the health services that meet their exact needs, and they will, therefore, stand a better chance of getting their health back on track. It is also through competition that the customers are provided with more competitive pricing for the services that they receive, thus making healthcare affordable and achievable for all the people in the society (Zweifel, 2017). However, with increased competition in the sector, the healthcare sector may be flooded with unscrupulous providers who may offer competitive prices, but at the risk of the quality of services provided, in that, they will give poor services that match the amounts paid for them. It is also through competition that the providers may be forced into providing services that may not be legal in the area of jurisdiction, for the sake of staying ahead of their competition. For example, in areas where abortion is not legalized, the provider may opt to provide them to have increased volumes of sales, at the risk of staying within the legal requirements of the jurisdiction.

Question 3

1. A. Discuss the impact of oligopoly in the health care sector

An oligopoly occurs when only a few firms provide the needed services, in this case, health care. An oligopoly can occur naturally, although they may form as a result of government directives to trim the number of firms providing the services in question to the public. Oligopoly in insurance is mostly related to the medical insurance providers, and the existence of an oligopoly in that sector presents the people concerned with different results. First, the existence of a few large providers provides the consumers with the benefit of having only reputable companies providing the services. Therefore the organizations will not be easily swept off the market. Secondly, an oligopoly helps the patients to receive better care since they can be members of providers that have access to a large pool of funds (Ganapati, 2018). The existence of a large pool of funds creates the possibility of the customers accessing better services that would have been impossible if they were members of a smaller healthcare provider. However, despite the benefits enjoyed, the customers have a limited choice of providers to choose from. Therefore they may not get the services that meet their exact demands from the providers available.

Question 4

4. Regression models are essential to understand business phenomena. Discuss.

Regression analysis and models are all about numbers associated with the business, whether it is inputs invested or the outputs that have been achieved in the long run. It is through regression models that businesses can understand the data points relating to them and how they can use them in current and future business decisions. Therefore, regression models help a business to make predictions on the most critical factors that may affect their business, and in the process make informed decisions on the path to take, with their decisions informed by the need to end up with profits and better experiences (Ward & Gleditsch, 2018). The organization in question can also use regression models to predict and understand inventory available to them and compare this to the supply and demand of the organization, hence enabling them to make more informed decisions on the inventory to keep at all times and the possibility of predicting the organization's demand and supply curves from the previous trading periods.

Question 5

You are an advisor for the banking system and have collected the following information.

Y = total costs per employee (in thousands of dollars per year). X1 = proportion of total loans that go to businesses (measured as a percentage so that a value of, say, 20 means 20% of loans are made to businesses). X2 = proportion of total deposits that come from households (measured as a percentage so that a value of, say, 20 means 20% of deposits come from households). D = a dummy variable which equals one if the bank is big (has more than 100 employees), = 0 otherwise. I also constructed another variable, Z = X2×D.

As an advisor, you ran a regression of Y on X1, X2, D, and Z. Results from this regression are given below in the following fitted regression line:

Y = 160 - 209×X1 + 320×X2 - 2.49×D -23×Z (6×10-7)

(0.020) (0.02) (0.05) (0.07)

where the numbers in parentheses are P-values

5. A. How would you interpret (in words) the estimated coefficients in this model? What is the OLS estimate of the marginal effect of X2 on Y?

The coefficients show the availability or lack of positive correlations between the independent variables in the situation and the dependent ones. In this case, the independent variable is the bank and the market in which it exists. The dependent variables in the banks include the levels of economic activities that will help the people in the market to take out loans to help them to prosper through the demands of the market.

5. B. Which of the statements you have just made are statistically significant at the 5% level? Which are significant at the 1% level?

The independent variables in the bank are significant at the 5% level since the existence of the bank in the market comes before the existence of any other factors in the market. Without the bank in existence, then there will not be any loans or interest rates to speak of in the first place. Therefore, the existence of the bank determines the possibility of all the other factors being in existence. On the other hand, the dependent variables are significant at the 1% level since the availability of the factors associated with this level also determines the existence of the bank. For example, the existence of flexible loans in the bank will determine the prosperity of the bank.

Question 6

6. A. Discuss the main drivers influencing the demand for cars.

First, the prices of cars will determine the possibility of consumers demanding cars. When prices are high, then the demand for cars in the market will be reduced, while favorable pricing will result in the demand for cars being high. Secondly, the demand for cars in an economy will be determined by the tastes and preferences of the market in question. When the cars produced at any given moment meet the tastes and preferences of the consumers, then the demand for cars will be high, while if they do not meet the tastes and preferences of the market, the demand for cars will be less. The population of the market will also have a direct impact on the demand for cars. When the population is large, the possibility of the demand for cars is higher compared to if the population was lower (Dutt, 2006).

Additionally, the composition of the population will determine the demand for cars, with the population containing more adults offering the possibility of demand for cars being higher, compared to if the market was made of more minors than adults. The demand for cars will be determined by the alternatives available, and if they are offering better options than those provided by owning cars. For example, if the public transport system is valid, then the possibility of the demand being lower is increased.

6. B. Define the main drivers influencing the supply of cars

First, if the pricing of cars in the market is high, then the possibility of the manufacturers engaging in more production is likely. Manufacturers are only interested in supplying goods that provide high values and returns, and therefore the pricing being high is an incentive for the supply to be increased. The availability and pricing of inputs will also influence the supply of cars in a given economy. When the inputs needed for the production of cars are readily available, then it is possible for the supply of cars in the market to be high, compared to if the inputs needed were scarce to the manufacturers (Dutt, 2006). Additionally, the pricing of the inputs will determine the supply of cars in the market, with higher prices of inputs making the supply less since the production costs will be high and affect the supply negatively. If the pricing of the inputs is lower, then the possibility of the supply is higher will be increased.

Question 7

7. A. Discuss the oligopoly of taxi drivers in Greater London

First, the taxi companies in the Greater London area have a substantial capital investment, which enables them to enjoy the benefits of an oligopolistic market situation. When the capital requirements of entering a market are high, then the possibility of an oligopoly existing is possible. Secondly, the government policies in place have created an oligopoly that is witnessed in the region. When government policies are stringent in allowing for market entrance, then an oligopolistic market can be created. The government mechanisms responsible for the planning of the Greater London area have strict requirements for the compa...