Q1) Analyst in production department for Chevrolet "Aveo" stated that "The marginal cost of a Aveo, given our current volume, is $12,500. Of course, actual marginal cost depends on number of cars produced. Larger the number produced, lower the unit cost because we will spread out our design and tooling costs over more cars."
Economies of scale help firms to lower their production cost per unit and therefore, many firms are merged or in the process of merging. However, some large firms may suffer diseconomies of scale. describe why some firms may suffer diseconomies of scale. Do you know any exs? Could GM and Ford be ex of diseconomies of scale?
A firm has fixed costs of $60 and variable costs as indicated in the table given below.
Total Output
|
Total Fixed Cost
|
Total Variable Cost
|
Total Cost
|
AFC
|
AVC
|
ATC
|
MC
|
0
|
$0
|
|
|
|
|
|
|
1
|
45
|
|
|
|
|
|
|
2
|
85
|
|
|
|
|
|
|
3
|
120
|
|
|
|
|
|
|
4
|
150
|
|
|
|
|
|
|
5
|
185
|
|
|
|
|
|
|
6
|
225
|
|
|
|
|
|
|
7
|
270
|
|
|
|
|
|
|
8
|
325
|
|
|
|
|
|
|
9
|
390
|
|
|
|
|
|
|
10
|
465
|
|
|
|
|
|
|
1) Complete the table above.
2) Graph AFC, AVC, ATC, and MC. Describe their relationship to one another.
3) Indicate how each of the following would shift the 1) average-variable-cost curve, 2) average-fixed-cost curve, and 3) average-total-cost curve.
a) An increase in transportation costs
b) A decrease in the price of electricity
c) An increase in insurance rates on plant and equipment.
4) prepare down 2 kinds of businesses that their costs are mostly variable costs, and prepare 2 types of businesses that their costs are mostly fixed costs.