Production and Perfect Competition
ECON220
The firm currently uses 50,000 workers to produce 200,000 units of output per day. The daily wage per worker is $80, and the price of the firm’s output is $25. The cost of other variable inputs is $400,000 per day.
Assume that total fixed cost equals $1,000,000. Calculate the values for the following four formulas:
• Total Variable Cost = (Number of Workers * Worker’s Daily Wage) + Other Variable Costs
• Average Variable Cost = Total Variable Cost / Units of Output per Day
• Average Total Cost = (Total Variable Cost +Total Fixed Cost) / Units of Output per Day
• Worker Productivity = Units of Output per Day / Number of Workers
Calculations: Total fixed cost equals $1,000,000
TVC=
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Their average variable cost is of $22. Where they differ is on their average total costs. The average total cost of the fixed costs of $1,000,000 is of $27. The average total cost of the fixed costs of $3,000,000 is of $37.
When the fixed cost equals to $1,000,000 their average total cost is of $27. The ATC is greater by $2 dollars when compared to their output price of $25. When the fixed cost equals to $3,000,000 their TR equals to $5,000,000. The TC is of $4,400,000. When all these values are compared, one can see that the company is losing money by staying open, be it $1mil or $3 mil.
Since they both lose money on either fixed cost, one should compare the firms TR to its TVC and the P to their AVC. When comparing the TR is it the fixed cost of $1mil or $3mil equals to $5,000,000 which is greater to their TVC of $4,400,000. And even it seems that they are losing on everything, their average variable cost is of $22, which is less than the output price of $25. Because of the AVC being less than the price, the firm gets to stay in operation.
If the firm can operate at a loss in the short-run, the number of employees
If the company decided to sell the new product at price of D.Cr. 8.20, that means the full fixed expense of 1.20 is covered and the company will make high profit. However, the selling price of D.Cr. 8.20 is very high and under this price the company will sell the new product at a lower volume than what the company planned sale volume in the budget and that will affect the company in the market as a strong competitor in the food manufacturing. According to the case, the company sales volume drop to 30 tons when the product was sold at the price of D.Cr. 8.2. Thus, my recommendation are as follows:
The calculation has proven that contribution margin of Model S is higher than Model LX. In conclusion, all resources should be allocated to produce Model S up to its maximum production capacity.
14. If 11,000 units are produced, what are the total amounts of direct and indirect manufacturing costs incurred to support this level of production?
2. What is the total cost? How much of the total cost are labor costs? Capital costs?
14. A decision to work closely with a limited number of suppliers for the purpose of ensuring that the proper materials are available at the optimal time is an example of:
Unit contribution = Unit Price – Unit Variable Cost = $1.80 – $1.40 = $0.40
If Marlene Herbert were to discontinue place mats, he would miss $270,000 that will go toward Mendel paper company fixed cost. The company currently has a plant overhead that is estimated at $420,000 for the quarter. In addition to the fixed plant overhead, the plant incurs fixed selling and administrative expenses per quarter of $118,000. This draws the company to a total fixed cost of $538,000. If Marlene Herbert were to discontinue the second highest contributor to the fixed cost, he would need to increase the volume of computer paper and lower material cost to help pull the contribution margin of the lowest product up to help support the lost of a whole product line.
2.) For each expense that is variable with respect to revenue hours, calculate the cost per revenue hour.
9. (Ignore income taxes in this problem.) The Crawford Company is pondering an investment in a machine that
Prestige Data Service has two variable costs: operation wages (or salaries) and power expense. However, both of them are quasi-fixed costs. This means that they have a fixed component and partly depend on the total revenue hours. Operation wages (or salaries) consists of fixed salaries and variable wages. Power expense is also a quasi-fixed expense which has monthly fixed power cost and variable cost. Since we have high frequency cost and output data, we can use excel to figure out relatively
No.of employees * 10% of gross sales = Cost of set up & ongoing communication + No. of employees * (Employee Base Salary + 5% of gross sales)
As an example, if fixed costs are $100, price per unit is $10, and variable costs per unit are $6, then the break-even quantity is 25 ($100 ÷ [$10 − $6] = $100 ÷$4). When 25 units are produced and sold, each of these units will not only have covered its own marginal (variable) costs, but will have also have contributed enough in total to have covered all associated fixed costs. Beyond these 25 units, all fixed costs have been paid, and each unit contributes to profits by the excess of price over variable costs, or the contribution margin. If demand is estimated to be at least 25 units, then the company will not experience a loss. Profits will grow with each unit demanded above this 25-unit break-even level.
Assume you have been hired as a managing consultant by a company to offer some advice that will help it make a decision as to whether it should shut down completely or continue its operations. It currently uses 100 workers to produce 6,000 units of output per month (working 20 days / month). The daily wage (per worker) is $70, and the price of the firm's output is $32. The cost of other variable inputs is $2,000 per day. It also tells us that the firm's fixed cost is “high enough” so that the firm's total costs exceed its total revenue. The marginal cost of the last unit is $30.
Manufacturing companies almost always incur variable expenses. A big reason why is because to make products, you need raw materials. In this case we have Fly Ash (250,000), Gypsum (250,000), Lime (300,000) and Sand (40,000). Another variable expense will be Workers Labor (100,000) and Drivers (25,000). The workers will be working varying hours depending upon the production need. During busy times they might be working overtime, while in down times they could very well be asked to not come in for a day. This is all under the assumption that they are paid hourly and not on salary. If they were salaried it would be considered a fixed cost. The same goes with the drivers. They will be delivering the products on a demand basis. More trips when the company is busy and less when production is slow.