(7.7) Variable costs are the costs that change when the quantity ofchanges,when production is zero. The relationship between total variable costsand they are(VC), cost per unit of output (v), and total quantity of output (Q) can be written as:VC=during a particular time period are calledoutput in a given period are defined as the sum ofTC=Costs which do not change when the quantity of output changesTotal costs (TC) for a given level ofand(7.8) The most significant break-even point for the financial manager is the financial break-evenpoint, which is the level of sales such that theof the project equals(7.9) The degree to which a firm or project relies on fixed costs is calledfirm or project with a relatively high level of fixed costs is said to have (high/low) operatingleverage. A high level of fixed costs is associated with a large investment in plant andequipment; this situation is said to beThe degree of operating leverageA(DOL) is defined such that: Percentage change in OCF =This definition is algebraically equivalent to: DOL=1+(7.10) For a given level of output, DOL (increases/decreases/remains constant) as the size of theincrease in Q increases. When the base level of Q increase, the DOL(increases/decreases/remains constant). A capital-intensive production process has a(higher/lower) DOL than a less capital-intensive process, so that OCF and NPV increase(more/less) rapidly with an increase in sales; if sales are below the forecasted level, then NPVdecreases (more/less) rapidly for the capital-intensive process. (7.2) The NPV of an asset equals the difference between the PV of the futureproduced by an asset and thepresent value turned out to be exactly zero, we would beinvestment and not taking it.of the asset. In the unlikely event that the netbetween taking the(7.3) The IRR is the rate of return which equates the NPV of an investment toAn investment isbies if the IRR exceeds the required return that could beearned in the financial markets on investment of equal risk; the IRR on an investment is therequired return that results in a zerowhen it is used as the(7.4) Ais the impact that a given capital budgeting project might have oncash flows in another area of the firm. One of the examples of this iscash flows of a new project that come at the expense of a firm's existing projects.which is the(7.5) In the bottom-up approach, OCF =crucial to remember that this definition of OCF asonly if there is noIt isis correctplussubtracted in the calculation of net income.(7.6) The top-down approach defines operating cash flow as follows:OCF =

Since you have posted multiple questions, we will provide the solution only to the first question…

changes, when production is zero. The relationship between total variable costs (7.7) Variable costs are the costs that change when the quantity of and they are. (VC), cost per unit of output (v), and total quantity of output (Q) can be written as: Costs which do not change when the quantity of output changes Total costs (TC) for a given level of and .. VC= during a particular time period are called, output in a given period are defined as the sum of : TC

changes, when production is zero. The relationship between total variable costs (7.7) Variable costs are the costs that change when the quantity of and they are. (VC), cost per unit of output (v), and total quantity of output (Q) can be written as: Costs which do not change when the quantity of output changes Total costs (TC) for a given level of and .. VC= during a particular time period are called, output in a given period are defined as the sum of : TC

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Cost of Production

In economic theory, production costs are the costs incurred by an industrial organization when it engineers a project or provides a service that generates revenue and benefits. Labor costs, raw materials, consumable manufacturing costs, and general overhead sum up, accounting for production costs. Total cost data is calculated by combining total direct costs of materials, labor costs, and total production costs.

Question

(7.7) Variable costs are the costs that change when the quantity of
changes,
when production is zero. The relationship between total variable costs
and they are
(VC), cost per unit of output (v), and total quantity of output (Q) can be written as:
VC=
during a particular time period are called
output in a given period are defined as the sum of
TC=
Costs which do not change when the quantity of output changes
Total costs (TC) for a given level of
and
(7.8) The most significant break-even point for the financial manager is the financial break-even
point, which is the level of sales such that the
of the project equals
(7.9) The degree to which a firm or project relies on fixed costs is called
firm or project with a relatively high level of fixed costs is said to have (high/low) operating
leverage. A high level of fixed costs is associated with a large investment in plant and
equipment; this situation is said to be
The degree of operating leverage
A
(DOL) is defined such that: Percentage change in OCF =
This definition is algebraically equivalent to: DOL=1+
(7.10) For a given level of output, DOL (increases/decreases/remains constant) as the size of the
increase in Q increases. When the base level of Q increase, the DOL
(increases/decreases/remains constant). A capital-intensive production process has a
(higher/lower) DOL than a less capital-intensive process, so that OCF and NPV increase
(more/less) rapidly with an increase in sales; if sales are below the forecasted level, then NPV
decreases (more/less) rapidly for the capital-intensive process.

(7.2) The NPV of an asset equals the difference between the PV of the future
produced by an asset and the
present value turned out to be exactly zero, we would be
investment and not taking it.
of the asset. In the unlikely event that the net
between taking the
(7.3) The IRR is the rate of return which equates the NPV of an investment to
An investment is
bies if the IRR exceeds the required return that could be
earned in the financial markets on investment of equal risk; the IRR on an investment is the
required return that results in a zero
when it is used as the
(7.4) A
is the impact that a given capital budgeting project might have on
cash flows in another area of the firm. One of the examples of this is
cash flows of a new project that come at the expense of a firm's existing projects.
which is the
(7.5) In the bottom-up approach, OCF =
crucial to remember that this definition of OCF as
only if there is no
It is
is correct
plus
subtracted in the calculation of net income.
(7.6) The top-down approach defines operating cash flow as follows:
OCF =

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Suppose you run a factory whose short-run production function is given by f (L) = 180L² – 3L³. (a) Find mathematical expressions for the total product of labor, the average product of labor and the marginal product of labor. (b) On two separate axes, graph TPL, APL, and M PL. The diagrams do not need to be scale, but be sure they are internally consistent. In other words, make sure that all relevant relationships between the three lines are correct. If you have trouble figuring out what the graph looks like, feel free to use a graphing calculator or an online graphing tool to find the basic shape. Find the quantity of labor associated with each of the following points and label it on your diagram: (i) the maximum value of TPL, (ii) the maximum value of APL, (iii) the maximum value of MPL. (c) For what values of L does the production function exhibit each of the following: i. increasing marginal labor productivity ii. diminishing marginal labor productivity iii. negative marginal labor…
can you explain the solution for part b like for example how did they get M=y^2/2 and L=2y^2
Refer to the table below. Note that the first column shows variable costs. Quantity Cost 0 1 2 3 5 6 (in dollars) Costs 0 15 35 60 90 Fixed Total Average Costs Total Costs (in (in (in dollars dollars) per unit) dollars) 160 40 40 40 55 55 : 40 75 37.5 40 100 125 40 33.3 40 130 32.5 165 33 40 200 33.3 Average Variable Costs (in dollars per unit) 15 17.5 20 22.5 25 26.6 Marginal Costs (in dollars per unit) 15 20 25 30 35 40 If the firm produces 5 units that it sells at a price of $30.00 each, what will its profits or losses equal? losses equal $15 profts equal $15 profts equal $25 losses equal $25
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how Marginal cost been calculated here. {MC=Change in ATC/Change in Q} please explian still not clear!!
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Marginal variable costs and marginal total costs are the same. True False
Firm "Happy Capitalist" has following production function: f(K, L) = 2*k0.2L0.8. Furthermore, it is known that cost of capital (r) is equal to 2 and cost of labour (w) is 4. Having said that, capitalist wishes to maintain an output of 250 at lowest possible cost. We ask: a) Solve cost minimisation. Also, is it a corner solution or an interior solution; b) Graph previous result: isoquant and isocost of production; c) Determine average productivity of each factor; d) Is it a function with returns to scale of what type, increasing, decreasing or constant? e) Calculate elasticity of input-output