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    Calculating costs for a bread factory

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    You are the owner of a small bread factory and are thinking of lowering costs and expanding. Your small-business advisors suggested that you first review your operations and make some technological changes. Complete the following:

    Explain what a technological change is and how you can use it to lower your costs.
    The next thing that your small business advisors asked you to do was to break down your costs and see what you can reduce.

    Develop a table that you believe shows the explicit fixed costs of the bread factory and the total amount of the costs.
    Describe your variable costs.
    Because you are not an expert yet on analyzing costs and optimal production levels, you decide to do a very simple analysis of your short-run fixed and variable costs if you expand. You decide that your only fixed cost will be the ovens and the variable costs will be the workers.
    Quantity of Workers

    Quantity of Ovens

    Quantity of Loaves of Bread Produced

    Cost of Ovens

    Cost of Workers Per Week

    0

    2

    0

    500

    0

    1

    2

    50

    450

    2

    2

    125

    3

    2

    210

    4

    2

    300

    5

    2

    410

    6

    2

    550

    7

    2

    625

    8

    2

    660

    9

    2

    700

    10

    2

    730

    Instructions

    Calculate the total cost and the average total cost, and add it to the table
    Calculate the marginal product of labor, and add it to the table.
    Calculate the average product of labor, and add it to the table.
    Although there seems to be a great demand for your bread, why would productivity decline when you hire more labor in the short run?
    What are your marginal costs?
    At what point do your marginal costs and your total costs intersect?
    Calculate your average total costs, your average fixed costs, and your average variable costs.
    What happens to your average variable costs as your output goes up? Why is that?
    How would expanding the business affect the economies of scale? When would you have constant return to scale and diseconomies of scale? Provide examples.
    Where is the optimal level of production and the optimal level of prices in the short run?
    Please submit your assignment.

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    https://brainmass.com/economics/microeconomics/calculating-costs-for-a-bread-factory-575521

    Solution Preview

    See the attached file for the calculations. TFC is 500 and the cost of each worker is 450 per week.

    >Calculate the total cost and the average total cost, and add it to the table

    TC = TFC + TVC
    ATC = TC/Q

    >Calculate the marginal product of labor, and add it to the table.

    MPL = (change in Q)/(change in number of workers)

    >Calculate the average product of labor, and add it to the table.

    APL = Q/workers

    >Although there seems to be a great demand for your bread, why would productivity decline when you hire more labor in the short run?

    The law of diminishing ...

    Solution Summary

    This solution shows how to use Microsoft Excel to complete a table of costs for a bread factory. Formulas are given for how to calculate the following quantities:

    Production
    Total Fixed Cost
    Total Variable Cost
    Total Cost
    Average Total Cost
    Marginal Product of Labor
    Average Product of Labor
    Marginal Cost
    Average Fixed Cost
    Average Variable Cost

    The solution also explains what information the factory needs to determine its optimal price and production quantity.

    $2.19

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