I will allow my Readers to ponder this Post with its varied links. I will let them read all the materials, which I of course didn’t. I ask only that they consider a series of Questions:
1) Output is determined basically by managerial schedules. There are various factors which go in to establishment of Production schedules: Land, Labor, Material Costs, Taxes, Energy Costs, prior Supply contracts, and Consumer Demand. Most of this examination suggests that loss of Profits from one Cost sector can be counterbalanced by gain of Profits from lower Costs in another sector. Attempt to adjudge the value of each element within the creation of any Production schedule. What carries the most Weight? How will one sector affect the other surrounding sectors in the complex of schedule formation? What is the heavy Hitter in determination of Production schedule choice?
2) Remember We are looking at these things from the viewpoint of Production managers who must set Production schedules. How would a 25% Rise in Energy Cost per Unit affect the other sectors?—clearly need to know the number of Energy units utilized in the Production process. What impact would a 3% Rise in Material Costs do to the Production schedule?–again, We must know how much of the Production Cost can be attributed to Material Costs. What would a 3% reduction in Finance Costs do to the Production schedule?–here We must find the total Cost of Finance to the overall Production Cost. We come to Labor and its Impact upon the Production schedules. We would first have to determine the Labor Cost per Unit in the Production process.
3) Is it likely that Labor Cost per Production unit equals even 50% of the total Production Cost?–maybe in some Third World country where the Production floor is rolling Cigarettes by Hand. Rule of Thumb here: Figure that Material Cost is about 20% usually, Plant is functionally about 40% of Production Costs, Energy Cost range around 12-25%, and Labor Costs come in around 25%–though It can vary about 15% in the Production process.
4) Economists make a really big deal about the difference between nominal Wage levels and real Wages levels. What exactly could be the difference between the two levels?–Hint: think about 14-16% actual or real, though Business personnel like to dream of 50% or greater. How great a factor can 14-16% of 25-40% of the Production Cost impact the decision-making of the managers, when they are setting up Production Schedules?
The heavy Hitters in managerial decision-making on Production schedules are prior Supply contracts and Consumer Demand. Neither are affected by the Costs of the Production schedules, but both can increase the Costs of Distribution and Marketing the Product. Understand that Distribution and Retail establish their own Cost level which is priced into the Product Pricing; this to solidify the Profit margins for the Product. I wish that good economists would ignore the Wage issues which constrain Production–which they really don’t–and concentrate on Wage issues which markedly impact Consumer Demand. Economists and Business personnel want Inflation everywhere except in Wages. lgl