1. Production, costs, operations management

2. Outline 1. Production 2. Costs 3. Operations management

3. Production Production – processes and methods used in the transformation of tangible and intangible inputs into goods and services

4. Production FIRM Output goods & services

5. Production FIRM Output goods & services Suppliers Customers/ buyers Competitors

6. Vocabulary Revenue, costs, profit TR – total revenue AR – average revenue, AR=TR/Q MR – marginal revenue, MR=TR’ TC – total costs AC – average costs, AC=TC/Q MC – marginal costs, MC=TC’ PR – profit, PR=TR-TC

7. Costs TC=FC+VC FC – fixed costs (TC|Q=0) VC – variable costs

8. Costs 1. Manufacturing: - direct material costs; - direct labor costs; - manufacturing overhead costs. 2. Non-manufacturing: - marketing and selling costs; - administrative costs.

9. Optimization MC=MR

10. Operations management Operations management - area of management concerned with overseeing, designing, and redesigning business operations to ensure that business operations are efficient and effective.

11. Efficient vs. Effective Efficient – 1) using as little resources as possible to ensure a needed level of output; – 2) providing maximum output with the given resources. Effective – ensuring that a target is achieved.