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demonstrate and explain how costs concepts help in managing production between the shortrun and longrun period
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- ABC company creates specialty shipping bags that they sell to pharmaceutical companies across the globe. With their current equipment, ABC can produce 12,000 shipping bags for every 10 bundles of materials purchased. Every month (20 working days), ABC purchases 100 bundles of materials. Each bundle requires one (1) labor minute to process, and every labor hour costs an average of $14.00. Each week (5 working days), ABC pays $5,000 inoverhead costs, and equipment costs $600 a day to operate. (a). How many shipping bags does ABC produce in a standard month (20 working days)? Each workday (8 hours)? (b). What is the single-factor productivity for labor, per workday (8 hours)? Whatis the multi-factor productivity, for every dollar spent per shipping bag?Determine whether the following production functions exhibit constant, increasing, or decreasing returns to scale. Provide relevant workings to support your answers. Q = 4L2 + 6LK + 3K2 Q = 2L2K0.6 Q = 0.25X + 5Y + 30ZFill in the missing parts in the following tables to illustrate the behavior of production and costs in the short-run; then determine the optimal level of production according to the number of inputs you are intending to use. Output Units Land Square Meters Capital Egyptian Pounds Labor Units 0 20 40000 0 1000 20 40000 5 1600 20 40000 8 2100 20 40000 11 2500 20 40000 14 2600 20 40000 17 Output FC VC TC MCL MPL AVC AFC ATC 0 1000 1600 2100 2500 2600 -Hint Consider land and capital as fixed factors, while labor units as variable factors. The cost of land is L.E20 per square meter. The interest rate on capital is 10%. The average wages per unit of labor is L.E1500.
- ACME Coal paid $5,000 to lease a railcar from the Reading Railroad. Under the terms of the lease, $1,000 of this payment is refundable if the railcar is returned within two days of signing the lease. 1. Upon signing the lease and paying $5,000, how large are ACME’s fixed costs? Its sunk costs? 2. One day after signing the lease, ACME realizes that it has no use for the railcar. A farmer has a bumper crop of corn and has offered to sublease the railcar from ACME at a price of $4,500. Should ACME accept the farmer’s offer?Imagine you are running a business that processes horticultural product, and is currently producing 40,000 tonnes of product per year. The average cost of producing 40,000 tonnes is $600 per tonne. A buyer for a large supermarket chain comes along and offers to buy an extra 10,000 tonnes of your product at a price of $300 per tonne. This price is much less than the average cost of production for the current annual output. With the current production system of the business, the marginal cost per tonne of producing an extra tonne is $200/ton. 1. Would you accept or reject this offer, and why? 2. What principles underlie your reasoning in deciding whether to accept or reject this offer?A firm faces the following costs: total cost of capital = $1,000; price paid for labor = $12 per labor unit; and price paid for raw materials = $4 per raw-material unit. a. Suppose the firm can produce 5,000 units of output this year by combining its fixed capital with 100 units of labor and 450 units of raw materials. What are the total cost and average total cost of producing the 5,000 units of output? b. Now assume the firm improves its production process so that it can produce 6,000 units of output this year by combining its fixed capital with 100 units of labor and 450 units of raw materials. What are the total cost and average total cost of producing the 6,000 units of output? c. If units of output can always be sold for $1 each, then by how much does the firm’s profit increase after it improves its production process? d. Suppose that implementing the improved production process would require a one-time-only cost of $1,100. If the firm only considers this year’s profit, would…
- The following is cost information for the Creamy Crisp Donut Company:Entrepreneur's potential earnings as a salaried worker = $50,000Annual lease on building = $22,000Annual revenue from operations = $380,000Payments to workers = $120,000Utilities (electricity, water, disposal) costs = $8,000Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000Entrepreneur's forgone interest on personal funds used to finance the business = $6,000Refer to the data. Creamy Crisp's implicit costs are: A. $150,000 B. $94,000 C. $136,000 D. $156,000FIRM X SPENT $100m to upgrade its equipment last year. this year, the amount represents: a. An accounting cost b. An opportunity cost c. An economic cost d. A sunk costShow whether the following production functions exhibit decreasing returns to scale (DRS), constant returns to scale (CRS), or increasing returns to scale (IRS)? a. q = 10L0.6K0.5 b. q = L + K c. q = L0.6 + K0.5
- "Diminishing Returns in Microbrewing? Your microbrewery produces craft beer, using a single vat, various ingredients, and workers. If you double the number of workers and ingredients, but don’t add a second vat, would you expect your output (gallons per hour) to double? Explain.If you double the number of workers and ingredients and add a second vat, would you expect your output (gallons per hour) to double? Explain."Differentiate between explicit and implicit costs. Explain the importance of considering both types of costs to make an economic decision. Provide examples of at least 2 explicit costs and 2 implicit costs.
