MGMT 122 Lecture Notes - Lecture 8: Mashing, Opportunity Cost, Variable Cost
Document Summary
This is the amount of product you can produce. It is a function of your fixed costs. Example: a milling machine can only prepare 1,000 parts per day, even if run 24 hours. The key decision is how to best use the limited capacity. These resources are often shared by multiple product lines. When a resource is fully utilized, an increase in one product"s volume can only be achieved by reducing another product"s volume. This means that each product imposes an opportunity cost on the other products by tying up the scarce resource. Examples: machinery, such as a mash tun in a brewery. These can be used for one product at a time: inspection/quality control. There are a limited number of employees that must test all products: shelf space in a store. S is called the resource"s shadow cost: for each product, the shadow cost should be treated as a variable cost.
