a) Using the line drawing tool, add the total cost graph for Stan to produce the assembly instead of purchasing from Salt Lake Supply, Total cost for the purchase option is already plotted. Properly label your line. Note: Carefully follow the instructions above and only draw the required object
a) Using the line drawing tool, add the total cost graph for Stan to produce the assembly instead of purchasing from Salt Lake Supply, Total cost for the purchase option is already plotted. Properly label your line. Note: Carefully follow the instructions above and only draw the required object
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Please add the total cost to produce the assembly
Transcribed Image Text:**Transcription**
Stan Fawcett's company currently purchases a gear assembly from Salt Lake Supply, Inc., at $4.20 per unit with a minimum order of 3,000 units. Stan is considering instead producing the gear assembly himself. He estimates that producing it himself will cost $16,000 to set up the process and then $1.75 per unit for labor and materials.
a) **Using the line drawing tool,** add the total cost graph for Stan to produce the assembly instead of purchasing from Salt Lake Supply. Total cost for the purchase option is already plotted. Properly label your line.
*Note: Carefully follow the instructions above and only draw the required object.*
**Graph Explanation**
The graph provided illustrates the cost comparison for the gear assembly:
- **Horizontal Axis (X-axis):** Represents the quantity of gear assemblies.
- **Vertical Axis (Y-axis):** Represents the cost in dollars.
- **Red Line:** Represents the total cost of purchasing from Salt Lake Supply, starting at $0 and increasing steeply after the minimum order of 3,000 units. The fixed cost (flat portion) is presented up to the 3,000 units due to the minimum order requirement.
- **Minimum Order Line:** A vertical dashed line at the 3,000-unit mark indicating the minimum order threshold for purchasing.
To complete the task, a graph line needs to be drawn that reflects Stan’s estimated costs for producing the assembly himself—from the setup cost of $16,000, increasing by $1.75 per additional unit produced.
Expert Solution
Step 1: Introduce the concept of total cost.
In economics, the concept of total cost refers to the sum of all costs incurred in producing a certain level of output. It is typically expressed as the sum of all fixed costs and all variable costs.
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