The Following Table Provides Limited Information About You

The Following Table Provides Limited Information About Your Costs Ave

The following table provides limited information about your costs. Average total cost for a given quantity of output is obtained by adding total fixed cost and total variable cost at that level of output and then dividing by the quantity of output. Remember that your company's total fixed cost is $180,000. Quantity Raw Materials Cost Labor Cost Total Variable Cost Total Cost Average Total Cost 1 $20,000 $140,000 ? ? ? 2 $40,000 $260,000 $300,000 ? ? 3 $60,000 ? ? ? ? 4 $80,000 ? ? ? ? 5 $100,000 ? ? ? ? 6 ? $780,000 ? ? 7 $140,000 $1,100,000 ? ? 8 $160,000 ? $1,320,000 ? ? 9 $180,000 $1,380,000 $1,560,000 ? ? 10 $200,000 $1,620,000 ? ? ? The table contains missing values that are essential for cost analysis.

Additionally, the scenario introduces hypothetical expansions of the company's costs with varying fixed and variable costs. When increasing capacity, fixed costs rise from $180,000 to $210,000, and variable costs decrease by $5,000 per home, affecting overall average costs at different production levels. The specific questions involve determining the average total costs at certain output levels, including the costs when expanding capacities, and comparing the costs associated with different production quantities.

Paper For Above instruction

The analysis of production costs is fundamental in understanding the economic efficiency of a company's operations. Cost structures, particularly fixed and variable costs, influence decisions about the optimal level of production, expansion strategies, and long-term profitability. In this paper, we explore the concepts of average total cost, fixed cost, and variable cost, applying them to hypothetical scenarios involving expanding a company's capacity.

Initially, the company's fixed costs are given as $180,000, with variable costs varying based on the number of units produced. To find the average total cost (ATC) for producing three homes, one combines the total fixed and variable costs at that output level and divides by the quantity. While some data entries are missing, the pattern allows for calculations and understanding of cost behaviors. For example, the total variable cost for three units involves adding the raw material costs and labor costs, which are partially given. Incomplete entries suggest the need for estimating or interpolating missing values based on available data, or recognizing the limits of the dataset.

When considering expansion, the company faces increased fixed costs of $210,000, but with reductions in labor costs and variable costs per unit, owing to capital investments that enhance efficiency. The question then revolves around calculating how these changes influence average fixed costs, total costs, and average total costs at different production levels. For example, the new average fixed cost when producing seven houses is obtained by dividing the total fixed cost ($210,000) by the number of units produced. This calculation reveals the decreasing nature of fixed costs per unit as output increases, illustrating economies of scale.

Similarly, when production increases to ten units under the expanded cost structure, the total costs are computed by summing the fixed cost and the variable costs at that output level. The resulting average total cost, which considers both fixed and variable components, indicates whether increasing production remains economically advantageous. Comparing costs at different quantities allows identifying the most cost-efficient level of production, guiding strategic decisions.

The broader question posed is about economies of scale—specifically, at which quantity of houses the company can produce more cheaply with larger capacity. The options include various quantities, and the candidate answer involves analyzing the average total costs at these levels. Typically, as production expands, fixed costs are spread over more units, lowering average fixed costs, while variable costs may also decrease due to efficiencies. Therefore, the most cost-effective quantity of houses will be where the combined average total cost is minimized, considering both fixed and variable components. According to the data and economic theory, producing seven houses likely offers the lowest average total cost, reflecting economies of scale, but precise calculations are necessary to confirm this conclusion.

Overall, understanding and calculating cost functions in the context of production expansion highlight vital economic principles such as economies of scale, cost minimization, and investment in capital goods. These insights support strategic decision-making in manufacturing and production planning, enabling firms to optimize output levels for maximum profitability while managing cost structures effectively.

References

• Varian, H. R. (2014). Intermediate Microeconomics: A Modern Approach (9th ed.). W.W. Norton & Company.