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App. B—Commissioned Background Papers

9

Thus , the preceding example of a five per cent reduction in unit wage costs would tend to reduce total unit costs by only one per cent if wages accounted

for only 20% of total unit costs. at all if the assumed ten per cent engendered by increased investment processed and hence more expensive

And total unit costs need not have declined increase in output per man-hour had been in machinery,or by purchasing more highly material inputs.

Wage

w

FIG. 3 Productivity network, cost structure and managerial control ratios.

Management tends to be even more concerned about the effects of prospective

innovations on profitability than on costs.

Hence,

account must be taken of the

fact that such effects involve not only the direct impact unit costs, but also the indirect effects of any changes product-mix on product prices and capacity utilization

of changes ‘on total

in product quality

or

rates.

In

addition,

profitability

would

also be

affected

by

any

changes

in

the

proportion

of

total

investment

allocated

to fixed

investment

and

in

the

productivity

of

fixed

invest-

ment.

But

this

discussion

will

not

pursue

such

further

ramifications.

It

may

be

  • ‚óŹ

    99

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