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Components of the economy and output decisions

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1. Explain why the terms market, capitalist, or socialist economies are no longer appropriate to differentiate between today's economic systems.

2. The U.S. economy may be thought of as consisting of three large groups.

(a) Name them.

(b) Provide an example of the interaction between each of these groups.

(c) Sometimes a fourth group is included. What would that group be? Provide an example of the interaction between this and the groups listed in your answer to (a).

3. Consider the following table of numbers, which represents demand and cost conditions for a competitive firm.

(a) Fill in the missing values.

(b) What level of output should the firm produce? Explain.

4. You own four firms that produce different products. The following table summarizes the conditions in each firm. After calculating the missing numbers for each firm, make one of the following four decisions regarding operations in each firm, and explain why a particular decision is reached.

(a) continue producing the same output level

(b) shut down

(c) increase output

(d) decrease output

5. Given the market share information in the table below, calculate the four firm concentration ratio and the Herfindahl index.

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Types of economies, economic components and output decisions for a firm

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Managerial economics

The company produces a component used in aerospace industry. The component consists of three parts (A,B, and C) that are purchased from outside and cost 40, 35, and 15 cents per piece, respectively. Parts A and B are assembled first on assembly line 1, which produces 140 components per hour. part C undergoes a drilling operation before being finally assembled with the output from assembly line 1. There are in total six drilling machines, but at present only three of them are operational. Each drilling machine drills Part C at a rate of 50 parts per hour. In the final assembly, the output from assembly line 1 is assembled with the drilled part C.The final assembly line produces at a rate of 160 components per hour. At present components are produced eight hours a day and five days a week. Management believes that if need arises, it can add a second shift of eight hours for the assembly lines.

The cost of assembly labor is 30 cents per part for each assembly line, the cost of drilling labor is 15 cents per part. For drilling, the cost of electricity is 1 cent per part. The total overhead cost has been calculated as $1200 per week. The depreciation cost for equipment has been calculated as $30 per week

A. draw a process flow diagram and determine the process capacity(number of components produced per week) of the entire process

B. Suppose a second shift of eight hours is run for assembly line 1 and the same is done for the final assembly line. In addition, four of the six drilling machines are made operational. the drilling machines operate for just eight hours a day. What is the new process capacity (number of components produced per week)? Which of the three operations limits the capacity?

C. Management decides to run a second shift of eight hours for assembly line 1 plus a second shift of only four hours for the final assembly line. Five of the six drilling machines operates for eight hours a day. What is the new capacity? Which of the three operations limits the capacity?

D. Determine the Cost per unit output for questions B and C

E. The product is sold at $4.00 per unit. Assume that the cost of a drilling machine(fixed cost) is $30,000 and the company produces 8,000 units per week. Assume that four drilling machines are used for production. If the company had an option to buy the same part at $3.00 per unit, what would be the break-even number of units?

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