Assume a European company that manufactures decorative fountain pens. The firm is trying to decide whether or not to expand its facilities. Currently, its fixed costs are $750,000 per month, and its average variable costs are $1.25 per pen. If the firm expands, its fixed costs will increase by $350,000 per month but its average variable costs will fall to $0.75 per pen. a. Write out the formula for the firm's current (short run) total cost TC(q), and its (short run) total cost TC(q) if it expands, with q measures the number of pens per month. Suppose the firm has a monthly volume of 600,000 pens. Should it expand? What about if the firm expects its volume to increase to 800,000 pens a month? b.

Assume a European company that manufactures decorative fountain pens. The firm is trying to decide whether or not to expand its facilities. Currently, its fixed costs are $750,000 per month, and its average variable costs are $1.25 per pen. If the firm expands, its fixed costs will increase by $350,000 per month but its average variable costs will fall to $0.75 per pen. a. Write out the formula for the firm's current (short run) total cost TC(q), and its (short run) total cost TC(q) if it expands, with q measures the number of pens per month. Suppose the firm has a monthly volume of 600,000 pens. Should it expand? What about if the firm expects its volume to increase to 800,000 pens a month? b.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assume a European company that manufactures decorative fountain pens. The firm is
trying to decide whether or not to expand its facilities. Currently, its fixed costs are
$750,000 per month, and its average variable costs are $1.25 per pen. If the firm
expands, its fixed costs will increase by $350,000 per month but its average variable costs
will fall to $0.75 per pen.
a. Write out the formula for the firm's current (short run) total cost TC(q), and its (short
run) total cost TC(q) if it expands, with q measures the number of pens per month.
Suppose the firm has a monthly volume of 600,000 pens. Should it expand? What
about if the firm expects its volume to increase to 800,000 pens a month?
b.
FA

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