# ch 4 - McGill Faculty of Engineering MIME 310 Engineering...

This preview shows pages 1–7. Sign up to view the full content.

1 McGill Faculty of Engineering MIME 310 Engineering Economy Tutorials Chapter 4. Production and Cost Analyses

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
2 McGill Faculty of Engineering MIME 310 Engineering Economy Tutorials 4.1 Consider the following total revenue (TR) and cost (TC) functions: TR = 350 Q - 0.025 Q 2 TC = 200 000 + 130 Q - 0.005 Q 2 in which TR and TC are given in dollars per period and Q, in units per period. i) At break-even, TP = TR - TC = 0 TP = 350 Q - 0.025 Q 2 - [200 000 + 130 Q - 0.005 Q 2 ] = -0.02 Q 2 + 220 Q - 200 000 = (-0.2 Q + 200) (0.1 Q - 1000) ...by factoring Determine: i) The break-even production rate; ii) The rate at which the profit per period is maximised. 0 200 400 600 800 1000 1200 1400 02468 1 0 1 2 PRODUCTION RATE ('000 units/period) TOTAL ('000 \$/period) Q 1 = 1000 (break even) Q 2 = 10 000 (profit limit) Using the quadratic equation: (-0.02) 2 000) (-200 (-0.02) 4 2 220 220 2 Q , 1 Q ± =
3 McGill Faculty of Engineering MIME 310 Engineering Economy Tutorials ii) Maximum TP at MC=MR MC = dTC/dQ = 130 - 0.01 Q MR = dTR/dQ = 350 - 0.05 Q 130 - 0.01 Q = 350 - 0.05 Q 0.04 Q = 220 Q = 5500

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
4 McGill Faculty of Engineering MIME 310 Engineering Economy Tutorials 4.2 The table below gives an incomplete account of the cost statistics associated with a particular production process. Determine the missing values. Production Rate (‘000 units/period) Total Costs (‘000 \$ /period) Average Cost (\$/unit) Incremental Cost (\$/unit) 0 11 1 20 8 2 28 3 33 4 9 5 38 4 6 7 7 8 60 9 8 14 10
5 McGill Faculty of Engineering MIME 310 Engineering Economy Tutorials 14 8 9 7 60 8 10 7 6 4 38 5 9 4 33 3 28 2 8 20 1 11 0 Incremental Cost (\$/unit) Average Cost (\$/unit) Total Costs (‘000 \$/period) Production Rate (‘000 units/period) AC = TC / R TC = AC R TC 2 = TC 1 + IC Δ R 20 - 11 = 9 38 + 4 = 42 42 + 7 = 49 72 + 14 = 86 20 / 1 = 20 28 / 2 = 14 33 / 3 = 11 38 / 5 = 7.6 60 / 8 = 7.5 60 - 49 = 11 33 - 28 = 5 36 - 33 = 3 38 - 36 = 2 72 - 60 = 12 Production Rate: R Total Costs: TC Average Cost: AC Incremental Cost: IC 9 (4) = 36 8 (9) = 72 42 / 6 = 7 49 / 7 = 7 86 / 10 = 8.6 TC 2 -TC 1 Δ R IC =

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
6 McGill
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 10/15/2011 for the course MIME 310 taught by Professor Bilido during the Fall '08 term at McGill.

### Page1 / 11

ch 4 - McGill Faculty of Engineering MIME 310 Engineering...

This preview shows document pages 1 - 7. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online