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Production and cost analysis in the short and long run

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It cost a company $50,000 to set up a chip manufacturing plant. The company pays $25 per hour for labor which is the variable input. A portion of the company's production schedule is:

Hours of Labor 1000
Number of Chips 200,000

a. Use the information in the above table to calculate th average product (AP) and marginal product (MP)

b. If 200,000 chips are produced, what is this company's total fixed cost (TFC), total variable cost (TVC), total cost (TC), average fixed cost (AFC), average variable cost (AVC), average total cost (ATC) and marginal cost (MC)?

c. At the production level of 200,000 chips, is the company's average variable cost decreasing, at a minimum or increasing?

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Solution Summary

Answers the question:

It cost a company $50,000 to set up a chip manufacturing plant. The company pays $25 per hour for labor which is the variable input. A portion of the company's production schedule is:

Hours of Labor 1000
Number of Chips 200,000

a. Use the information in the above table to calculate th average product (AP) and marginal product (MP)

b. If 200,000 chips are produced, what is this company's total fixed cost (TFC), total variable cost (TVC), total cost (TC), average fixed cost (AFC), average variable cost (AVC), average total cost (ATC) and marginal cost (MC)?

c. At the production level of 200,000 chips, is the company's average variable cost decreasing, at a minimum or increasing?

Solution Preview

Your fixed costs (which are not associated with units of production, ie. independent of the quantity) are $50,000.

In 1000 hours of labor, 200,000 units are produced. That means that in 1 hour, 200 units are produced.

A unit of labor costs $25 per hour and in that one hour, 200 units are produced. This means that the average variable cost per unit is $0.125.

FC = ...

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