Assignment Activity Unit5

By

Nang San Poung

Cost and Production Analysis: A Case Study of GreenHarvest Farms'

1. The definitions in the context of Green Harvest Farm

In the context of Green Harvest Farms, production means the process of growing and the goods

that they produce, such as fruits and vegetables. They measure the farm’s production output in

tons. Cost involves the expenses that the farm uses when producing its products. For instance,

the purchase of seeds, labor, and machinery. These costs are combined to form the total cost of

the production. Revenue means the amount of money that the firm will receive by selling its

products. Productivity refers to how many fruits and vegetables the firm can grow with the

existing amount of labor and machines.

Production plays an essential role in the firm’s performance and profitability. It makes sure that

the company produces enough products to meet market demand. Cost also plays an important

role in a company’s profitability. The Green Harvest needs to keep the cost as low as possible to

ensure better profits. Revenue is also vital, as the more products that the firm sells, the greater

the profits it will get. Lastly, productivity makes sure that the firm can manage its production

process.

2. The data of the company

Quantity Price Total Total Average Marginal Average Marginal Profit /

Produce (P) Cost Revenue Cost Cost Revenu Revenue Loss

d (TC) AC=TC MC= e
(TR) /Q change MR =
 (Q) in C / AR = change
change TR / Q in R /
in Q change
in Q

100 tons $200 $30,000 $20,000 $300 - $200 - -

$10,000
200 tons $180 $55,000 $36,000 $275 $250 $180 $160 $19,000

300 tons $160 $80,000 $48,000 $266.6 $250 $160 $120 $32,000

400 tons $140 $110,00 $56,000 $275 $300 $140 $80 $54,000
0
500 tons $120 $140,00 $60,000 $280 $300 $120 $40 $80,000
0

As production increases, the average cost will initially decrease because of the fixed cost

spreading over the increased input and then increasing later on, highlighting the diseconomies of

scale (Mankiw and Taylor, 2020).

The marginal cost will increase as the farm increases its total output.

Average revenue will reduce as the farm increases its quantity sold, partly because of the

reduction in selling prices.

Marginal revenue decreases as output increases because of the imperfect market dynamics where

the firm has to lower its prices (Mankiw & Taylor, 2020).

In the short run, the firm experiences losses because it increases its output and sales volume due

to increasing production costs.

3. Economics or diseconomies of scales

Based on the data above, GreenHarvest Farm experiences economic scales. This is because the

average cost decreases as production increases until it reaches 300 tons, and then starts

increasing as production increases.

4. Recommendations that I would suggest Green Harvest Farms to improve its short-run
profitability

Given the profits or losses at each level of production, I would recommend that GreenHarvest

Farm not reduce prices in the short run. As the firm reduces its prices with an increase in output,

it will experience losses. As an alternative, it should focus on maintaining its prices and reducing

its outputs. This way, it can help in managing its costs, especially variable costs such as labor, as

an increase in output can lead to an increase in the cost of production. As a result, the firm will

be able to improve short-run profitability.

To sum up, by implementing effective management and strategic decision-making, short-run

businesses will overcome the challenges and be able to enhance their financial performance and

focus on their long-term goals.

References:

Shapiro, D., MacDonald, D., Greenlaw, S. A., Dodge, E., Gamez, C., Jauregui, Andres., Keenan,
D., Moledina, A., Richardson, C., & Sonenshine, R. (2023). Principles of microeconomics (3rd
ed.).

https://www.investopedia.com/terms/s/shortrun.asp