A perfectly competitive firm is making plans for the coming two years of production. Market rate is 10%. Fixed and Variable costs: The firm can purchase a fixed asset at $5,000,000. With this fixed asset firm's variable costs will be 6Q+Q^2/11,000. If the firm opens a second factory with an additional $5,000,000 fixed cost, due to economies of scale, the variable cost for both factories will be 3Q+Q^2/14,000 ( for each factory). All costs are due today, at the beginning of the first year. Revenue: Market price is $96.8/per Q, which is collected at the end of two years. What is the IRR of the additional machine? keep in mind: factory 1 has a total cost of $5million+3Q +Q^2/14,000 and separately factory 2 has a total cost of $5million+3Q+Q ^2/14,000
A perfectly competitive firm is making plans for the coming two years of production. Market rate is 10%. Fixed and Variable costs: The firm can purchase a fixed asset at $5,000,000. With this fixed asset firm's variable costs will be 6Q+Q^2/11,000. If the firm opens a second factory with an additional $5,000,000 fixed cost, due to economies of scale, the variable cost for both factories will be 3Q+Q^2/14,000 ( for each factory). All costs are due today, at the beginning of the first year. Revenue: Market price is $96.8/per Q, which is collected at the end of two years. What is the IRR of the additional machine? keep in mind: factory 1 has a total cost of $5million+3Q +Q^2/14,000 and separately factory 2 has a total cost of $5million+3Q+Q ^2/14,000
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:A perfectly competitive firm is making
plans for the coming two years of
production. Market rate is 10%.
Fixed and Variable costs: The firm can
purchase a fixed asset at $5,000,000.
With this fixed asset firm's variable costs
will
be 6Q+Q^2/11,000.
If the firm opens a second factory with an
additional $5,000,000 fixed cost, due to
economies of scale, the variable cost for
both factories will be 3Q+Q^2/14,000 (
for each factory).
All costs are due today, at the beginning
of the first year.
Revenue: Market price is $96.8/per Q,
which is collected at the end of two
years.
What is the IRR of the additional
machine?
keep in mind:
factory 1 has a total cost of $5million+3Q
+Q^2/14,000 and separately factory 2
has a total cost of $5million+3Q+Q
^2/14,000
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