ECON 1001 Lecture Notes - Lecture 8: Hyperbola, Fixed Cost, Variable Cost
Document Summary
Get access
Related Documents
Related Questions
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 |
Ā | Ā | Ā | Ā | Ā | Ā | Ā | Ā | Ā | Ā | Ā |
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:
What level of output should the manager of Redstone choose to produce? Explain your choice in 50-100 words.
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 |
Ā | Ā | Ā | Ā | Ā | Ā | Ā |
600 |
Ā | Ā | Ā | Ā | Ā | Ā | Ā |
700 |
Ā | Ā | Ā | Ā | Ā | Ā | Ā |
800 |
Ā | Ā | Ā | Ā | Ā | Ā | Ā |
900 |
Ā | Ā | Ā | Ā | Ā | Ā | Ā |
1000 |
Ā | Ā | Ā | Ā | Ā | Ā | Ā |
1100 |
Ā | Ā | Ā | Ā | Ā | Ā | Ā |