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. Unit variable costs B Material $7.00 $6.50 $6.00 Labor $9.00 $6.50 $4.00 Overhead $2.00 $3.00 $4.00 Total $18.00 $16.00 $14.00 Annual fixed costs Depreciation Capital Overhead Total Annual capacity $120,000 $200,000 $400,000 $60,000 $100,000 $200,000 $120,000 $200,000 $300,000 $300,000 $500,000 $900,000 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. Short-Run Average Total Cost (SRATC) Long-Run Average Total Cost (LRATC) Output (Q) (Dollars) (Dollars) (Dollars) (Dollars) A B с 50,000 24 28 32 24 100,000 24 21 23 24 150,000 24 19.33 20 24 200,000 22.5 21 18.5 22.5 250,000 22.8 20 17.8 22.8 300,000 23 21 17 23 350,000 Based on the cost schedules calculated, construct the long-run average total cost schedule for the production of blenders and fill the final column of the preceding table.
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. Unit variable costs B Material $7.00 $6.50 $6.00 Labor $9.00 $6.50 $4.00 Overhead $2.00 $3.00 $4.00 Total $18.00 $16.00 $14.00 Annual fixed costs Depreciation Capital Overhead Total Annual capacity $120,000 $200,000 $400,000 $60,000 $100,000 $200,000 $120,000 $200,000 $300,000 $300,000 $500,000 $900,000 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. Short-Run Average Total Cost (SRATC) Long-Run Average Total Cost (LRATC) Output (Q) (Dollars) (Dollars) (Dollars) (Dollars) A B с 50,000 24 28 32 24 100,000 24 21 23 24 150,000 24 19.33 20 24 200,000 22.5 21 18.5 22.5 250,000 22.8 20 17.8 22.8 300,000 23 21 17 23 350,000 Based on the cost schedules calculated, construct the long-run average total cost schedule for the production of blenders and fill the final column of the preceding table.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text: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
$7.00
$6.50
$6.00
Labor
$9.00
$6.50
$4.00
Overhead
$2.00
$3.00
$4.00
Total
$18.00
$16.00
$14.00
Annual fixed costs
Depreciation
Capital
$120,000
$200,000 $400,000
$60,000 $100,000 $200,000
$120,000 $200,000 $300,000
Overhead
Total
Annual capacity
$300,000 $500,000 $900,000
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.
Short-Run Average Total Cost (SRATC)
Long-Run Average Total Cost (LRATC)
Output (Q)
(Dollars)
(Dollars)
(Dollars)
(Dollars)
A
B
C
50,000
24
28
32
24
100,000
24
21
23
24
150,000
24
19.33
20
24
200,000
22.5
21
18.5
22.5
250,000
22.8
20
17.6
300,000
23
21
17
22.8
23
350,000
Based on the cost schedules calculated, construct the long-run average total cost schedule for the production of blenders and fill the final column of
the preceding table.
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