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diseconomies of scale, say, due to high… Show more In this

Paper help Economics diseconomies of scale, say, due to high… Show more In this

Economics

diseconomies of scale, say, due to high… Show more In this

diseconomies of scale, say, due to high… Show more In this module, it is demonstrated that some times extensive diseconomies of scale, say, due to high transportation costs, would require that the firm produce its product in a multiple of plants. Suppose a beer brewing company has determined that its “font-style:italic;font-weight:bold;”>total production cost is: TC = 1000 Q – 1.2 Q 2 “font-weight:bold;”>+ 0 .004Q “font-weight:bold;”>3 Â where Q is its annual output measured in metric tons. A. The “font-style:italic;font-weight:bold;”>average hauling (freight) cost is $0.8Q; that is AFC = 0.8Q.Write the firm’s “font-style:italic;font-weight:bold;”>average aggregated cost equation. B. Now suppose the firm is facing the following market demand: Q = 760,000 – 10 P Â Â Â Determine the optimal number of plants that the firm should have to take full advantage of the market demand. C. Calculate the firm’s profit. For 5 extra bonus points: D. Compare the firm’s profit with multiple plants with its profit with a single plant. Hint: The firm’s MC equation based on its aggregated total cost (including the freight cost) is:Â MC = 1000Â – 0.8 Q + 0 .012 Q “font-weight:bold;”>2 • Show less

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