A firm faces the following costs: total cost of capital = $1500; price paid for

Question

A firm faces the following costs: total cost of capital = $1500; price paid for labor = $14 per labor unit; and price paid for raw materials = $5 per raw-material unit.

a. Suppose the firm can produce 5500 units of output this year by combining its fixed capital with 100 units of labor and 450 units of raw materials. What are the total cost and average total cost of producing the 5500 units of output?

Instructions: Round your answers to two decimal places.

TC = $
ATC = $

b. Now assume the firm improves its production process so that it can produce 6250 units of output this year by combining its fixed capital with 100 units of labor and 450 units of raw materials. What are the total cost and average total cost of producing the 6250 units of output?

Instructions: Round your answers to two decimal places.

TC = $
ATC = $

c. If units of output can always be sold for $1 each, then by how much does the firm

Explanation / Answer

a) TC = $1500 + 100*14 + 450*5 = 5150

ATC = TC/quantity = $0.94

b)TC = 1500 + 100*14 + 450*5 = 5150

ATC = TC/quantity = $0.82

c)profits before improvement = 5500-5150 = 350

profits after improvement = 1100

increase = 750

d)no, because profits before improvement will be more 350 > (1100-850 =250)

if future is considered then answer is yes

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