Task 3: Costs of Production Explain whether the following events in questions 1

Question

Task 3: Costs of Production Explain whether the following events in questions 1 and 2 will affect fixed costs or varlable costs (make sure you justify your answer): 1. The federal mark) Maxdmum number of words 40 2. Samsung signs a new contract changing the price it pays for 'power boards' that are used in its TVs. (1 mark) Maximum number of words 40 Read the following excerpt and answer question 3. Airbus and Dreamliner Battle for Air Space The world's largest possenger plone (Airbus] has proven to be the most expensive civilian airplane ever developed. Airbus claims its fuel efficiency control system and sound-reduction technology also make it the most advanced airliner ever built. The Dreamliner trovels the some distance as the A380 (Airbus) at the some speed but carries half the passengers Author: Davin Coburn Jun 15, 2010o Source: http://www.popularmechanics.com/flight/a5819/airbus-vs-boeing-battle-for-air-space/ You are an executive in an airline company that uses both Dreamliner and Airbus planes. Thinking of the long run, when might it be best to use the Dreamliner? When might it be best to use the Airbus? Use the long run average total cost curve in explaining your answer. (4 marks) Maximum number of words 350 3. Type here to search

Explanation / Answer

Question 1

The federal government applies a licence fee on every television network of 1 million AUD.

This even will affect the fixed costs.

Reason - This licence fee is necessary for the operation of 'television network'. However, it is independent of the number of subscribers that a television network have. Whatever be the number of subscribers, each television network has to pay this licence fee to remain in business.

When a cost is independent of the output produuced then it is regarded as fixed cost.

So, this licence fee is a fixed cost and thus will affect fixed costs.

Question 2

Samsung signs a new contract changing the price it pays for power boards that are used in its TVs.

This even will affect the variable costs.

Reason - Power boards are used in production of TVs. Number of power boards needed depends on the number of TVs produced.

So, total amount spent on power boards depends on the number of TVs produced.

When a cost is dependent on the output produced then it is regarded as variable cost.

So, the price of power boards is a variable cost and thus will affect variable costs.

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