14. Don owns a small concrete-mixing company. His fixed cost is the cost of the

Question

14. Don owns a small concrete-mixing company. His fixed cost is the cost of the concrete-batching machinery and his mixer trucks. His variable cost is the cost sand, gravel, and other inputs for producing concrete the gas and maintenance for the machinery and trucks; and his workers. He is trying to decide how many mixer trucks to purchase. He has estimated the costs shown in the accompanying table based on estimates of the number of orders his company will receive per week. VC 40 orders Quantity 20 orders 60 of trucks 2 3 4 FC orders $6000 $2000 $5000 $12 000 10 800 8 400 7000 1800 3800 8000 1200 3600 a. For each level of fixed cost, calculate Don's total cost for producing 20, 40, and 60 orders per week. b. If Don is producing 20 orders per week, how man trucks should he purchase and what will his average total cost be? Answer the same questions for 40 and 60 orders per week.

Explanation / Answer

a) Total cost = fixed cost + variable cost

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b)

Quanitty of trucks FC 20 orders 40 orders 60 orders Total cost 20 orders Total cost 40 orders Total cost 60 orders 2 $6,000 $2,000 $5,000 $12,000 $8,000 $11,000 $18,000 3 $7,000 $1,800 $3,800 $10,800 $8,800 $10,800 $17,800 4 $8,000 $1,200 $3,600 $8,400 $9,200 $11,600 $16,400

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