PRODUCTION AND COSTS

Firms incur costs when the) buy inputs to produce the goods and services that they plan to sell. In this section, we exammne the link. between a firm’s production process and its total cost. Once again, we consider Hungry Helen’s Cookie Factory.

In the analysis that follows, we make an important simplifying assumption: We assume that the size of 1 Helen’s factory is fixed and that Helen can vary the quantity of cookies produced only by changing the number of workers. This assumption is realistic in the short run but not in the long run. That is, Helen cannot build a larger factory overnight, but she can do so within a year or two. This analysis, therefore, describes the production decisions that.Helen faces in the short run. We examine the relationship between costs and time horizon more fully later in the chapter.

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