Analyze, with the Aid of a Diagram, Whether There Is Link Between Diminishing Returns and Economies of Scale.

Total Variable Cost = (Number of Workers * Worker’s Daily Wage) + Other Variable Costs

As you may recall from the chapter on production theory, in the early stages of production, a firm is expected to encounter increasing marginal product. As inputs are used for production, they become more specialized and the resulting efficiency gains cause production to increase more than proportionately. For example, suppose one worker was capable of producing one unit/hour. By adding a second worker, each worker

Variable and fixed costs per unit (or per 100 brochures) at the current monthly production level of 150,000 brochures can be determined from the data in case Exhibit 1, as follows:

Variable Cost defines the cost of a single assembled product based on the materials consumed and labor invested directly in unit production. To illustrate our point, we can say that making a single baked potato with all of the fixings will cost $3.00 to produce (potato, sour cream, chives, plate, fork, napkin and labor). If we decide to go into the baked potato business, we must then sell these potatoes for at least $3.00 per unit. Any less would cause us to lose money on the endeavor. This cost cannot be made up by increasing volume of sales. Judy Koch discussed the fact that bulk purchases can benefit you reduce these variable costs. If we decided to purchase potato-making materials in larger quantities and hired more workers to produce these products, we could

Explain how a profit maximizing firm determines its optimal level of output, using marginal revenue and marginal cost as criteria:

In this table, it reflects the changes in fixed plant overhead from $420,000 to $378,000. The company still has the fixed selling and administrative expense per quarter of $118,000. The new company fixed overhead is now at $496,000 from the past $538,000 ($42,000) change from past to

The Marginal Cost graph intersects the Average Total Cost graph and the Average Variable Cost graphs at their minimum points. As long as the cost of producing one additional unit remains less than average total cost, the average total cost continues to fall. When marginal cost finally exceeds average total cost, average total cost begins to rise in response. The same effect applies to the relationship between marginal cost and average variable cost.

A) It is not efficient, because it does not produce at minimum average total cost.

INSTRUCTIONS: you have 1 hour 30 minutes to complete the exam. Write all your answers in the space provided; any work on the back pages will be given zero credit. You can write

18) Refer to the above graph. The level of output at which this firm is maximizing an economic profit is:

Variable costs are costs that vary with output. Variable cost changes according to the quantity of a good or service being produced. Generally variable costs increase at a constant rate relative to labor and capital. Variable costs may include wages, utilities, materials used in production, etc. The inputs of Listerine start with Raw Materials (generally composed of diluents, antibacterial agents, soaps, flavorings,

3 variable costs indentified, they are power, operations, material. They are proportional to the revenue intake.

In other words, variable cost per unit is equal to the slope of the cost volume line (i.e. change in total cost ÷ change in number of units produced).

Furthermore, the ACC strategy of offering increased variety requires shorter production runs which inherently increases the cost associated with each product and packaging, as idle time due to process changeover would increase between each product production (4.8% of time com-pared with 2% for DJC). The strategy of increased variety and production runs by the ACC would also affect labor in a number of ways. Direct labor costs would go up due to a larger amount of idle time associated with process changeover and the chance of increased problems associated with the

Even when the demand for an operations products can be reasonably well forecast, the inherent uncertainty in all estimates of future demand may inhibit the business from investing capital to meet the most likely level of demand. Contrastingly, this principle can be linked to the concept of economies of scale. For BCF the addition of one unit of capacity i.e. from the extra capacity provided by the conventional technology option, the total fixed costs per unit of potential production output will decrease. For the new technology option, the addition of one unit of capacity will increase unit costs – a diseconomy of scale. Initially, this claim is based on the capital cost of implementing the new technology option, as well as diseconomies of over using capacity having the effect of increasing unit costs above a certain level of output. As a result, more operations activities