7. Exercise 8.7 Kitchen Helper Company decides to produce and sell food blenders and is considering three different types of production facilities ("plants"). Plant A is a labor-intensive facility, employing relatively little specialized capital equipment. Plant B is a semi-automated facility that would employ less labor than A but would also have higher capital equipment costs. Plant C is a completely automated facility using much more high-cost, high-technology capital equipment and even less labor than B. Information about the operating costs and production capacities of these three different types of plants is shown in the following table. A B C Unit variable costs Material $3.50 $3.25 $3.00 Labor $4.50 $3.25 $2.00 Overhead $1.00 $1.50 $2.00 Total $9.00 $8.00 $7.00 Annual fixed costs Depreciation $60,000 $100,000 $200,000 Capital Overhead $30,000 $50,000 $100,000 $60,000 $100,000 $150,000 Total Annual capacity $150,000 $250,000 $450,000 75,000 150,000 350,000 Determine the average total cost schedules for each plant type to fill first three empty columns of the following table. (Hint: For output levels beyond the capacity of a given plant, assume that multiple plants of the same type are built. For example, to produce 200,000 units with Plant A, three of these plants would be built.) Note: If necessary, round to two decimal places. Output (Q) Short-Run Average Total Cost (SRATC) (Dollars) (Dollars) (Dollars) Long-Run Average Total Cost (LRATC) (Dollars) A B C 50,000 100,000 150,000 200,000 250,000 300,000 350,000
7. Exercise 8.7 Kitchen Helper Company decides to produce and sell food blenders and is considering three different types of production facilities ("plants"). Plant A is a labor-intensive facility, employing relatively little specialized capital equipment. Plant B is a semi-automated facility that would employ less labor than A but would also have higher capital equipment costs. Plant C is a completely automated facility using much more high-cost, high-technology capital equipment and even less labor than B. Information about the operating costs and production capacities of these three different types of plants is shown in the following table. A B C Unit variable costs Material $3.50 $3.25 $3.00 Labor $4.50 $3.25 $2.00 Overhead $1.00 $1.50 $2.00 Total $9.00 $8.00 $7.00 Annual fixed costs Depreciation $60,000 $100,000 $200,000 Capital Overhead $30,000 $50,000 $100,000 $60,000 $100,000 $150,000 Total Annual capacity $150,000 $250,000 $450,000 75,000 150,000 350,000 Determine the average total cost schedules for each plant type to fill first three empty columns of the following table. (Hint: For output levels beyond the capacity of a given plant, assume that multiple plants of the same type are built. For example, to produce 200,000 units with Plant A, three of these plants would be built.) Note: If necessary, round to two decimal places. Output (Q) Short-Run Average Total Cost (SRATC) (Dollars) (Dollars) (Dollars) Long-Run Average Total Cost (LRATC) (Dollars) A B C 50,000 100,000 150,000 200,000 250,000 300,000 350,000
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:7. Exercise 8.7
Kitchen Helper Company decides to produce and sell food blenders and is considering three different types of production facilities ("plants"). Plant A is
a labor-intensive facility, employing relatively little specialized capital equipment. Plant B is a semi-automated facility that would employ less labor
than A but would also have higher capital equipment costs. Plant C is a completely automated facility using much more high-cost, high-technology
capital equipment and even less labor than B. Information about the operating costs and production capacities of these three different types of plants
is shown in the following table.
A
B
C
Unit variable costs
Material
$3.50
$3.25
$3.00
Labor
$4.50
$3.25
$2.00
Overhead
$1.00
$1.50
$2.00
Total
$9.00
$8.00
$7.00
Annual fixed costs
Depreciation
$60,000 $100,000 $200,000
Capital
Overhead
$30,000 $50,000 $100,000
$60,000 $100,000 $150,000
Total
Annual capacity
$150,000 $250,000 $450,000
75,000 150,000 350,000
Determine the average total cost schedules for each plant type to fill first three empty columns of the following table. (Hint: For output levels beyond
the capacity of a given plant, assume that multiple plants of the same type are built. For example, to produce 200,000 units with Plant A, three of
these plants would be built.)
Note: If necessary, round to two decimal places.
Output (Q)
Short-Run Average Total Cost (SRATC)
(Dollars)
(Dollars)
(Dollars)
Long-Run Average Total Cost (LRATC)
(Dollars)
A
B
C
50,000
100,000
150,000
200,000
250,000
300,000
350,000
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