ECON 1P91 Lecture Notes - Lecture 7: Microcystin-Lr, Taipei Metro, Marginal Revenue

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19 Dec 2015

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Tuesday, october 27, 2015. Fixed costs do not vary with production. Plants and equipment, taxes, insurance, mortgage payment, rent, managers salary. Total fixed costs (tfc) do not vary with output. Average fixed costs (afc) vary with output. Q increases as tfc remain the same spreading overhead. Slope of afc flattens as more is produced. Afc approach, but never reach zero. Marginal fixed costs (mfc) are always zero. Variable costs increase as production increases. If plant closed, these costs not incurred. [ac]mc= change in tc/ change in q(output) Rate of change in tc or the increase in tc caused by additional unit being produced. Mc is slope of tc curve. Atc (ac), avc, mc are u- shaped. Mc cuts ac and avc at their minimum points. Vertical distance between ac and vc is afc. Distance shrinks as q increases because afc is decreasing. When mc decrease avc decreases. Mc =avc avc is minimum.

Related Questions

You have collected the following data on output and total variable costs:

Q	TVC
1	60
2	110
3	150
4	180
5	200
6	230
7	280
8	350
9	440
10	550

Current fixed costs for the company equal $200. Draw two graphs, both with Q on the horizontal axis: one graph shows TVC and TC, and the other shows AVC, AC, and MC.Suppose that the government imposes a $50 property tax hike on all businesses; how will that affect your two graphs; i.e., which cost curves will be affected and how?

Select one:

a. TC will shift down by $50 since it reduces profitability by that amount.

b. MC will shift up by $250, the new fixed cost amount.

c. TVC and AVC will shift up by $50 divided by Q.

d. The property tax will shift up TC and AC by $50.

Suppose instead that the government considers your production process to be polluting, and imposes a $10 tax per unit produced. How does this tax increase compare to the property tax increase, in terms of the effect on your company

I need a step by step solution for the following.

A manufacturing plant has a potential production capacity of 1,000 units per month (capacity can be increased by 10 percent if subcontractors are employed). The plant is normally operated at about 80 percent of capacity. Operating the plant above this level significantly increases variable costs per unit because of the need to pay the skilled workers higher overtime wage rates. For output levels up to 80 percent of capacity, the variable cost per unit is $100. Above 80 percent and up to 90 percent, variable costs on this additional output increase by 10 percent. When the output is above 90 percent and up to 100 percent of capacity, the additional units cost an additional 25 percent over the unit variable costs for outputs up to 80 percent of capacity. For production above 100 percent and up to 110 percent of capacity, extensive subcontracting work is used and the unit variable costs of these additional units are 50 percent above those at output levels up to 80 percent of capacity. At 80 percent of capacity, the plant's fixed costs per unit are $50. Total fixed costs are not expected to change within the production range under consideration. Based on the preceding information, complete the following table.

Q	TTC	TFC	TVC	ATC	AFC	AVC	MC
500
600
700
800
900
1000
1100

tealshark78

Redstone Clayworks Inc. is located in Sedona, Arizona, and manufactures clay fire pits for patios. They are one of about two dozen firms around the world that manufacture and sell clay fire pits for retailers such as Home Depot, Lowe's, Front Gate, and other upscale home product chains. There is virtually no product differentiation. A clay fire pit is a clay fire pit.

The spreadsheet below gives some of Redstone's production cost data.

Assume that the world market demand and supply curves for clay fire pots intersect at $190 per unit.

Q	TC	TFC	TVC	AFC	AVC	ATC	SMC	TR	MR	Profit	Average	Profit
											Profit	Margin
0	7000	7000	NIL	NIL	NIL	NIL	NIL	0	NIL	-7000	NIL	nil
100	14000	7000	7000	70	70	140	70	19000	190	5000	50	26%
200	23000	7000	16000	35	80	115	90	38000	190	15000	75	39%
300	32000	7000	25000	23.33	83.33	106.67	90	57000	190	25000	83.33	44%
400	43000	7000	36000	17.5	90	107.5	110	76000	190	33000	82.5	43%
500	52000	7000	45000	14	90	104	90	95000	190	43000	86	45%
600	74000	7000	67000	11.67	111.67	123.33	220	114000	190	40000	66.67	35%
700	97000	7000	90000	10	128.57	138.57	230	133000	190	36000	51.43	27%
800	111000	7000	104000	8.75	130	138.75	140	152000	190	41000	51.25	27%
900	132000	7000	125000	7.78	138.89	146.67	210	171000	190	39000	43.33	23%
1000	152000	7000	145000	7	145	152	200	190000	190	38000	38	20%

AFC = total fixed cost/total output.

AVC = total variable cost/total output.

ATC = total cost/total output.

MC = change in total cost/change in output.

Total revenue = price * quantity. And given that the demand and supply intersect at $190, which implies that the equilibrium price is $190 because the point where the demand equals the supply determines the price.

MR = change in total revenue/change in output.

Profit = total revenue - total cost.

Average profit = total profit/total output.

Profit margin = total profit/total revenue*100 or (revenue - cost)/revenue*100.

Question:

a. What level of output should the manager of Redstone choose to produce? Explain your choice in 50-100 words.

b. Make a copy of your spreadsheet and triple the fixed costs to 21,000. How does this change your answer to question a? Explain your result in 50-100 words.

whitehound166

ECON 1P91 Lecture Notes - Lecture 7: Microcystin-Lr, Taipei Metro, Marginal Revenue

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