Sub part (a):
The total cost,
Sub part (a):
Explanation of Solution
The total cost can be calculated by adding all the fixed as well as the variable costs that the firm incurs during the process of production together, as follows:
The average total cost is the average cost of producing a unit. It is calculated by dividing the total cost with the total output as follows:
The profit is the excess revenue over the cost that the firm generates through the sale of the product. It can be calculated by subtracting the total cost from the total revenue.
Here, the fixed cost of capital of the firm is $1,000. The firm uses 100 units of labor and 450 units of raw materials. The cost of the raw materials and the labor is the variable cost of the firm. The cost of a unit of labor is $12 and that of raw material is $4 per unit. Thus, the total cost of producing 5,000 units of output can be calculated by adding the fixed costs as well as the variable costs together, using equation (1):
Thus, the total cost of producing 5,000 units is $4,000. The average total cost can be calculated by dividing the total cost with the total output. The total cost is $4,000 and the total output is 5,000. Thus, the values can be substituted in equation (2) to calculate the average total cost as follows:
Thus, the average total cost is $0.80.
Concept introduction:
Total cost: Total cost is the summation of all the fixed as well as variable costs of the production.
Average total cost: Average total cost is the cost per unit, which can be calculated by dividing the total cost with the total output.
Sub part (b):
The total cost, average total cost and the profit.
Sub part (b):
Explanation of Solution
The quantity of labor used as well as the raw material used in the process of production is the same as before and thus, there is no change in the cost of production at all. Thus, the total cost of production remains the same; $4,000.
Since there is an increase in the total quantity of production, it will affect the average total cost of production. The total output increases to 6,000 and the total cost remains at $4,000. We can substitute these values in equation (2) to calculate the average total cost as follows:
Thus, the average total cost is $0.67.
Concept introduction:
Total cost: Total cost is the summation of all the fixed as well as variable costs of the production.
Average total cost: Average total cost is the cost per unit, which can be calculated by dividing the total cost with the total output.
Profit: It is the excess revenue over the cost.
Sub part (c):
The total cost, average total cost and the profit.
Sub part (c):
Explanation of Solution
The price per unit is given as $1. The total output in the first production process is 5,000. Thus, the total revenue can be calculated by multiplying the total output with per unit price as follows:
Thus, the total revenue from using the old method is $5,000. The total cost of production is $4,000 and thus, the total profit in the production can be calculated by subtracting the total cost from the total revenue as follows:
Thus, the profit is $1,000 from the old production process.
The total output increases to 6,000 in the modern production process and the price per unit remains the same. Thus, the total revenue from the modern production process can be calculated by multiplying the total output with the per unit price as follows:
Thus, the total revenue from the new production process is $6,000. The total cost of production is $4,000 and thus, the total profit in the production can be calculated by subtracting the total cost from, total revenue as follows:
The difference in the revenue from the modern and the old production process is the profit of the firm from the improvement in the production process. Thus, the profit can be calculated by subtracting the old profit from the new profit as follows:
Thus, the profit from the improved production process is $1,000.
Concept introduction:
Total cost: Total cost is the summation of all the fixed as well as variable costs of the production.
Average total cost: Average total cost is the cost per unit, which can be calculated by dividing the total cost with the total output.
Profit: It is the excess revenue over the cost.
Sub part (d):
The total cost, average total cost and the profit.
Sub part (d):
Explanation of Solution
There is only an additional profit of $1,000 for the firm while using the improved production process. When there is a one-time cost of implementation which is $1,100, there will be an increase in the total cost of production by $1,100 which will reduce the profit from $1,000. Thus, the firm will choose not to implement the progress when it considers only profit of 1 year.
When the firm considers future revenues, the one-time cost will only reduce the profit for the next year and for the rest of the life of the production, it will provide $1,000 more revenue than the old method. Thus, the firm will choose to implement the progress.
Concept introduction:
Total cost: Total cost is the summation of all the fixed as well as variable costs of the production.
Average total cost: Average total cost is the cost per unit, which can be calculated by dividing the total cost with the total output.
Profit: It is the excess revenue over the cost.
Want to see more full solutions like this?
Chapter 15 Solutions
ECONOMICS W/CONNECT+20 >C<
- Table 13-18 Marginal Product Variable Fixed Cost Labor Output Cost So $10 200 200 $20 $10 350 $40 S10 13 450 $60 $10 14 50 $80 $10 5 25 $100 $10 530 $120 $10 Refer to Table 13-18. What is the average fixed cost of producing 450 units of output? O 10 O 70 O 21 O.02arrow_forwardConsider the following production schedule: Output per hour Total Cost 0 $ 1 $ $ $ $ 4.00 7.00 8.00 12.50 17.20 $ 22.00 $ 29.00 In the above table, the firm's total fixed cost of production is 2 3 4 5 сл LO 6 $99.70 $4 $29 $3 $7arrow_forward1. Suppose that Bill owns a vehicle smash repair shop. The table below shows how the quantity of cars Bill can repair per month depends on the number of workers that he hires. Assume that he pays each worker $4000 per month and his fixed costs are $6000 per month. Using the information provided, complete the table. QUANTITY QUANTITY OF OF CARS PER WORKERS MONTH 0 1 2 3 4 LO 5 0 20 30 40 50 55 FIXED COSTS $6000 VARIABLE COSTS TOTAL COST AVERAGE TOTAL COSTarrow_forward
- Workers Pizza Fixed cost in $ per day per day Variable cost in S TC per day 400 per day [25 (75 400 200 6 00 750 850 400 350 450 115 400 145 400 600 lo00 1200 170 400 800 8. Referring to the table above, when the second worker is hired, the marginal cost per pizza is equal to: a) $3 b. $75 750-600 75-25 150 ATC %3D 5u C. $50 d. $150 Duutp Dout 際ATCarrow_forwardRefer to the following table. What is the average product of the 4th worker? Number of Workers 0 1 2 3 4 LO 5 6 Units of Capital 4 units of output LO 5 LO 5 5 5 5 5 LO 5 Group of answer choices 3 units of output 16 units of output 6 units of output Output 0 2 LO 5 9 16 22 23arrow_forwardSuppose that a business incurred implicit costs of $300,000 and explicit costs of $1,300,000 over the past year. If the firm sold 70,000 units at $20 per unit, its accounting: O profits were $400,000 and its economic profits were $100,000 O profits were $100,000 and its economic profits were zero. O profits were $100,000 and its economic losses were $200,000 O losses were $200,000 and its economic profits were $100.000. tv MacBook Pro DOD 000 F4 F8 19 F5 F6 F7arrow_forward
- The table below shows cost data for producing different amounts of cough syrup. Use the given information to find the missing cost data. Quantity 0 1 2 3 4 LO 5 Total Cost in $ 120 150 206 556 -> Average Fixed Cost in $ Average Variable Cost in $ 60 30 24 9. 30 22.5 28.6666666666667 47.25 -> Marginal Cost in $ 30 15 103 247 ←arrow_forwardacroeconómic Policy and Natural Resources (10)|| Sp Time left 1:23:57 estion When a par ar firm is fully utilizing its capital, its output is given by Y = 10 × LO5. The cost of labour is OMR1 per unit. To maximize profit, how many units of labour should this firm use? wer saved -ked out of Flag O a. 50 estion O b. 100 О с. 5 O d. 25 O e. 3.16 CLEAR MY CHOICE NEXT PAGE PREVIOUS PAGE CET 0001 A 人 hparrow_forwardSuppose that marginal product doubled while product price tripled in the table belo Marginal Marginal Product (MP) Units of Total Product Product Price | Total Revenue Revenue Resource (Output) Product $2 $0 1 7 7 2 14 $14 2 13 6. 2 26 12 3 18 2 36 10 4 22 2 44 8 25 50 6 27 2 2 54 4 7 28 1 56 LOarrow_forward
- Answer the question on the basis of the following cost data. Output Total Fixed Cost Total Variable Cost Average Fixed Cost Average Variable Cost 1 $ 50.00 $ 2 $ 50.00 $ 3 $ 50.00 $ 4 $ 50.00 $ 5 $ 50.00 $ 6 $ 50.00 $ 440.00 $ 7 $ 50.00 $ 560.00 $ 8 $ 50.00 $ 700.00 $ The marginal cost of the fifth unit of output is O 62 O 80 O 78 O 3 100.00 $ 160.00 $ 200.00 $ 260.00 $ 340.00 $ 50.00 $ 25.00 $ 16.67 $ 12.50 $ 10.00 $ 8.33 $ 7.14 $ 6.25 $ 100.00 80.00 66.67 65.00 68.00 73.33 80.00 87.50arrow_forwardSuppose that low-skilled workers employed in clearing woodland can each clear one acre per month if each is equipped with a shovel, a machete, and a chainsaw. Clearing one acre brings in $1,000 in revenue. Each worker’s equipment costs the worker’s employer $150 per month to rent and each worker toils 40 hours per week for four weeks each month. LO17.6 Now consider the employer’s total costs. These include the equipment costs as well as a normal profit of $50 per acre. If the firm pays workers the minimum wage of $6.20 per hour, what will the firm’s economic profit or loss be per acre? At what value would the minimum wage have to be set so that the firm would make zero economic profit from employing an additional low-skilled worker to clear woodland?arrow_forwardThe function for total production of a certain metal at a mining operation is modeled by P(KL)=40- KU.3. Lº. where K represents capital spending, in units of $200,000 and L represents labor costs, in units of 10,000 labor-hours. Each hour of labor has an total cost of $70. If the company budgets $20,000,000 for the current year, determine how much should be spent on capital, how much on labor, and what total production they expect. Round production to the nearest 0.1. UIC Click here to create a new row The amount to be spent on Capital is K= ,on Labor is L= and total Production isarrow_forward
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education