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Likurg_2 [28]
3 years ago
15

Assume a European company that manufactures decorative fountain pens. The firm is trying to decide whether or not to expand its

facilities. Currently, its fixed costs are $750,000 per month, and its average variable costs are $1.25 per pen. If the firm expands, its fixed costs will increase by $350,000 per month but its average variable costs will fall to $0.75 per pen.
a. Write out the formula for the firm’s current (short run) total cost TC(q), and its (short run) total cost TC(q) if it expands, with q measures the number of pens per month.

b. Suppose the firm has a monthly volume of 600,000 pens. Should it expand? What about if the firm expects its volume to increase to 800,000 pens a month?
Business
1 answer:
Wittaler [7]3 years ago
7 0

Answer:

(a)

TC(q) [before expansion] = Fixed Cost + Variable Cost

                                              = 750,000 + 1.25q

TC(q) [after expansion] = (750,000 + 350,000) + 0.75q

                                      = 1,100,000 + 0.75q

(b)  (i) q = 600,000

TC(q) [before expansion] = 750,000 + (1.25 × 600,000)

                                          = 750,000 + 750,000

                                          = 1,500,000

TC(q) [after expansion] = 1,100,000 + (0.75 × 600,000)

                                      = 1,100,000 + 450,000

                                      = 1,550,000

Since expansion will increase total cost, profit will fall ceteris paribus. So firm should not expand.

(ii) q = 800,000

TC(q) [before expansion] = 750,000 + 1.25 × 800,000

                                          = 750,000 + 1,000,000

                                           = 1,750,000

TC(q) [after expansion] = 1,100,000 + (0.75 × 800,000)

                                      = 1,100,000 + 600,000

                                      = 1,700,000

Since expansion will decrease total cost, profit will rise ceteris paribus. So firm should expand.

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Answer:

See explaination

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// Address.java

public class Address {

/**

* The name of the business

*/

private String name;

/**

* The name of the street the business is on

*/

private String street;

/**

* The street number of the business

*/

private int number;

/**

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* at number no on the street st

*/

public Address(String nm, String st, int no)

{

name = nm;

street = st;

number = no;

}

/**

* Returns the name of the business

*/

public String getName()

{

return name;

}

/**

* Returns the name of the street on which the business is located

*/

public String getStreet()

{

return street;

}

/**

* Returns the street number of the business

*/

public int getNumber()

{

return number;

}

}

//end of Address.java

//AddressBook.java

import java.util.ArrayList;

import java.util.List;

public class AddressBook {

/**

* The list of business addresses. No two businesses in the list

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*/

private List<Address> addresses;

/**

* Constructs an empty AddressBook

*/

public AddressBook()

{

addresses = new ArrayList<Address>();

}

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* atreturn a list with the names of each business with an address on that street

*/

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{

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List<String> businessName = new ArrayList<String>();

// loop over the list of addresses

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}

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}

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*

* atparam nm the name of the business

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*/

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if((addresses.get(i).getStreet().equalsIgnoreCase(st)) && (addresses.get(i).getNumber() == no))

{

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return i; // return the index i

}

}

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addresses.add(new Address(nm,st,no));

return addresses.size()-1; // return the last index

}

}

//end of AddressBook.java

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