# Topic 3-Assignment.docx - Attempts 1 . Individual Problems...

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Attempts1 . Individual Problems 7-3The variety of Riverside Ranger logo T-shirts includes 12 different designs. Setup between designstakes one hour (and \$23,000), and, after setting up, you can produce 1,000 units of a particular designper hour (at a cost of \$9,000).Note: AssumeQQ denotes the quantity produced of a particular design.Which of the following best represents the average cost function for producing any single design?AC=\$23,000+\$9QAC=\$23,000+\$9QAC=\$23,000Q+\$9AC=\$23,000Q+\$9AC=\$23,000+\$9,000AC=\$23,000+\$9,000AC=\$23,000+\$9AC=\$23,000+\$9Points:1 / 1Based on this information, production in any one single designError! Filename not specified.exhibitseconomies of scale.Points:1 / 1Close ExplanationExplanation:Based on the information given, the average variable cost of productionisVariable CostQ=\$9,0001,000=\$9Variable CostQ=\$9,0001,000=\$9. Total cost is the sum of total fixedcost and total variable cost, which equalsTC=Fixed Cost+Variable Cost=\$23,000+\$9×QTC=Fixed Cost+Variable Cost=\$23,000+\$9×Q. Dividing each side of the equation by thequantity producedQQ yields the average costAC=TCQ=\$23,000Q+\$9AC=TCQ=\$23,000Q+\$9. Sincethe average cost function decreases as quantity increases, this production process exhibits economiesof scale for any single design.Answer:
AttemptsAverage noscore out of 1/ 12. Individual Problems 7-4Under constant returns to scale, average costremains constantas the quantity produced increases.Over this range of output, the marginal cost curve isequivalentthe average cost curve.AttemptsAverage noscore out of 3/ 33. Individual Problems 7-5Suppose you have a production technology that can be characterized by a learning curve. Every timeyou increase production by one unit, your marginal cost decreases by \$8. There are no fixed costs, andthe first unit costs you \$64 to produce.
Use the given information to fill in the marginal cost of each unit, as well as the total cost and averagecost of each level of output.QuantityMarginal CostTotal CostAverage Cost(Units)(\$)(\$)(\$/unit)1\$64\$64\$642561206034816856440208525322404862426444Suppose you receive a request for proposal (RFP) on a project for three units.Your break-even price for three units is \$56The break-even price is the average avoidable cost per unit. As there are no fixed, or sunk, costsin this scenario, all costs are avoidable. The total cost of producing three units is \$168. Thus, theaverage cost of producing three units is\$1683=\$56\$1683=\$56. This means that in order to breakeven, you would need to receive at least that amount per unit of output.Suppose that if you get the contract, you estimate that you can win another project for two more units.The break-even price for those next two units alone is\$36.Given that you have already produced three units, the extra cost of producing two more units isthe sum of the marginal costs of producing each of those extra units. Since the marginal cost ofproducing the fourth unit is \$40 and the marginal cost of producing the fifth unit is \$32, the totalcost of producing these two units is\$40+\$32=\$72\$40+\$32=\$72, and the average cost ofproducing these two units is\$722=\$36.00\$722=\$36.00

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