Mock Report – Micro Macro Theory and Application

Total Cost
When producing their new product Sony will have to know about several costs of production in order to produce efficiently and make a profit. Total costs are the sum of fixed and variable costs of production. Fixed costs are those which do not change with production but are always paid regardless of production levels. For a company like Sony these could include their rent for their offices and factories, the cost of their machinery or the cost of utilities needed to run their factories. Variable costs by comparison are those which vary in line with production, the more that is produced, the more variable resources are used and the less that is produced, the less that is needed. For Sony, this could include raw materials, labour costs or distribution costs.
Fixed Costs
Variable Costs
Costs
Output

The diagram above shows how Sony’s fixed, variable and total cost would look. The Fixed costs are a straight horizontal line as they do not vary with output; they are Sony’s overhead costs and will always have to be paid. Variable costs are represented by an upwards sloping line as they rise as output rises. Total costs start at fixed cost and slope upwards in the same shape as variable cost as it is a sum of the two costs combined.
The other costs which Sony will need to consider are its Average Total Cost (ATC) and its Marginal Cost (MC). Average cost can be defined as cost per unit sold.
As production is increased and more workers are employed, productivity is likely to rise. If workers specialise in particular tasks their efficiency or productivity in these tasks will also rise. Greater productivity will also be achieved by cutting down in the wasted time moving between jobs. As more labour is employed, total variable costs go up. However, if productivity of workers rises due to specialisation