Before Beginning This Assignment, Make Sure You Have Gone ✓ Solved

Before beginning this assignment, make sure you have gone

Before beginning this assignment, make sure you have gone carefully through all of the required readings for this module. It is very important to carefully absorb both the general concepts as well as the numerical examples in the background readings. For this assignment, you will have to answer some purely conceptual questions as well as some numerical problems. For conceptual questions, make sure to thoroughly explain your answers and to cite specific readings from the required background materials to explain your answers. For numerical problems, make sure to show all of your work and explain how you arrived at your answers (partial credit can be given if you get the final answer wrong but do some of the steps correctly).

Case Assignment Part A: Conceptual questions

1. Suppose you own a television factory and at your current level of output you have average total cost of $800 per television, average variable costs of $700 per television, and a marginal cost of $400. If the price your buyers are willing to pay is $500, should you decrease or increase production? Explain your reasoning, and make sure to cite at least one of the required readings in your answer.

2. You are the owner of a restaurant, and currently you have only one waiter. While this keeps costs down, many of your customers go home because they are tired of waiting in line or waiting for their order. You hire four more waiters and waitresses, and you are now able to serve a dramatically higher number of customers. Seeing the huge productivity gains from hiring more staff, you then hire 20 more waiters and waitresses. However, you are not able to serve any more customers than you were able to when your staff size was only four. In fact, your restaurant has become overly crowded because there is not enough room in your restaurant for all of your staff. You are confused as to why hiring four more staff members increased your productivity, but hiring 20 more did not. What concept from the background readings best describes what happened in this case? Explain your reasoning.

Part B: Quantitative problems The following table gives the total weekly output of bicycles at Al’s Bicycle Town.

Table 1 Labor Total Product (TP) Average Product of labor (AP) Marginal Product of labor (MP) 0 0 na na ----- ___ 3 450 ___ ___ 4 ___ ___ ___ ___ 6 ___ 110 ___

· Complete this table.

· Draw the graphs of the marginal product (MP) and the average product (AP).

· Where do the AP and MP curves cross?

· Complete Table 2 using your answers from Table 1 and by computing total variable cost (TVC) and total cost (TC).

Table 2 Labor Total Product (TP) Total variable cost (TVC) Total cost (TC) 0 0 na ___ 2 300 ----- ___ 3 450 ___ ___ 4 ___ ___ ___ ___ 6 ___ 12000 ___

· Draw the graphs of the TC and TVC curves. What is the relationship between these two curves?

· Complete Table 3 by using your answers from the previous Tables and calculating the AVC, ATC, and MC.

Table 3 Total Product (TP) Average variable cost (AVC) Average total cost (ATC) Marginal cost (MC) 0 na na na 100 20 ___ ----- ___ ___ 450 ___ ___ ___ ___ ___ 21.43 ___ 630 ___ ___ ___ ___ ___ ___ 66.67

· Draw the graphs of the ATC, AVC, and MC curves. What is the relationship between the ATC and AVC curves? Between the MC and AVC curves?

Required Reading: To start off this module, watch the following videos which will give you an introduction to some of the main concepts for this module. Pay special attention to the discussion about fixed versus variable costs and accounting versus economic profit: Clifford, J., & Hill. J. (2016). Revenues, profits, and price. CrashCourse. CrashCourse : youtube 8.9M subscribers Revenue, Profits, and Price: Crash Course Economics #24 video. The following book will give you a relatively simple introduction to the key concepts covered in the module.

In addition to the concepts, make sure to go carefully through the numerical examples. Read Chapter 7 of the following book: Taylor, T. (2014) Principles of Microeconomics. OpenStax College. Now go to this slightly more advanced book chapter that will cover the concepts from this module from the point of view of a business manager: Marburger, D. R., & Peterson, R. (2013). Chapter 4: What your cost accountant can’t measure: The economic theory of production and costs. Economic Decision Making Using Cost Data: A Manager's Guide. New York, NY: Business Expert Press. Optional Reading Beveridge, T. M. (2013). Chapter 5: Production, costs, and revenues. A Primer on Microeconomics. New York, N.Y.: Business Expert Press.

Paper For Above Instructions

### Introduction

The principles of economics provide the fundamental frameworks necessary for understanding business operations efficiently. This paper aims to address both conceptual and quantitative questions arising from a series of scenarios encountered in business environments, particularly focusing on cost analysis and production efficiency. By utilizing specific economic theories, this paper will analyze concepts surrounding average total cost (ATC), average variable cost (AVC), marginal cost (MC), and the implications of labor efficiency.

### Conceptual Questions

#### Question 1: Should the Television Factory Increase or Decrease Production?

In the context of the television factory, the situation presents a scenario of marginal cost versus price threshold. The average total cost (ATC) of $800 surpasses the price buyers are willing to pay, which is $500. Additionally, the marginal cost (MC) of producing one additional television is $400, which is less than the selling price of the television but still lower than the average variable cost (AVC) of $700 (Taylor, 2014). Because the price is lower than the ATC, the factory incurs a loss for each television produced. Therefore, it is advised that production be decreased to minimize losses and avoid operating below the break-even point. The factory should ideally cease production entirely as the price received does not even cover the AVC.

This concept can be understood better with references to fixed costs not being applicable in the short run. As long as daily production does not exceed fixed costs despite marginal cost being lower than AVC, decreasing output is the prudent step.

#### Question 2: Restaurant Staffing and Diminishing Returns

In the case of the restaurant, the initial hiring of four additional waiters indeed increased productivity due to improved service speed and customer satisfaction. However, hiring 20 additional staff members led to diminishing returns; the restaurant became overly crowded, restricting the capacity to serve more customers. This scenario illustrates “diminishing marginal returns,” where adding an input (in this instance, labor) leads to a decrease in the additional output produced beyond a certain point (Marburger & Peterson, 2013). Initially, labor productivity increases, but as more staff is added, the benefit starts to diminish due to limitations in physical space and management efficiencies.

### Quantitative Problems Part A: Completing the Tables

To provide solutions to quantitative problems, we must first complete the missing data in the tables provided:

Table 1: Total Product Analysis

Labor

Total Product (TP)

Average Product (AP)

Marginal Product (MP)

0; 0; na; na

1; 150; 150; 150

2; 300; 150; 150

3; 450; 150; 150

4; 600; 150; 150

6; 710; 118.33; 110

This suggests that the marginal product remains constant with the initial increase in labor, reflecting the initial phase of increasing returns to labor.

Table 2: Total Cost Calculations

Labor

Total Product (TP)

Total Variable Cost (TVC)

Total Cost (TC)

0; 0; na; 4000

1; 150; 2000; 6000

2; 300; 6000; 10000

3; 450; 8000; 12000

4; 600; 10000; 14000

The total cost (TC) reflects the sum of the total variable costs (TVC) and total fixed costs (TFC) associated with running the business.

Table 3: Cost Analysis

Total Product (TP)

Average Variable Cost (AVC)

Average Total Cost (ATC)

Marginal Cost (MC)

0; na; na; na

1; 13.33; 40; 40

2; 20; 33.33; 28.57

3; 21.11; 26.67; 25

4; 16.67; 23.33; 20

6; 14.08; 20.42; 18.75

From the determined ATC, AVC, and MC values, we observe the relationship wherein the AVC curve approaches the ATC curve at minimal output rates, and the MC intersects AV and ATC at their minimum points. This indicates effective cost management as output scales rise.

### Conclusion

Through addressing both conceptual and quantitative problems, we explored crucial aspects of economic principles, particularly in production management. The findings emphasized the importance of understanding cost structures to enhance profitability and operational efficiency.

References

  • Clifford, J., & Hill, J. (2016). Revenues, profits, and price. CrashCourse. YouTube.
  • Taylor, T. (2014). Principles of Microeconomics. OpenStax College.
  • Marburger, D. R., & Peterson, R. (2013). Economic Decision Making Using Cost Data: A Manager's Guide. Business Expert Press.
  • Beveridge, T. M. (2013). A Primer on Microeconomics. Business Expert Press.
  • Mankiw, N. G. (2021). Principles of Economics. Cengage Learning.
  • Case, K. E., & Fair, R. C. (2019). Principles of Economics. Pearson.
  • Krugman, P., & Wells, R. (2021). Microeconomics. Worth Publishers.
  • Perloff, J. M. (2016). Microeconomics. Pearson.
  • Varian, H. R. (2014). Intermediate Microeconomics: A Modern Approach. W.W. Norton & Company.
  • Parkin, M. (2016). Microeconomics. Pearson.

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