Unit 3 Ip Econ 220
Chad Carter
American Intercontinental University
Unit 3 Individual Project
ECON 220 – Microeconomics
May 19, 2013
Abstract
This paper will provide an analysis of 2 production scenarios. We will calculate costs associated with running a production facility. Furthermore, the analysis will be used to provide a basic understanding of how changes in staffing and productivity impact profit and loss.
Management’s Production Decision
Introduction
This report will provide insight on what your management team should do concerning production costs. We will examine 2 different scenarios and provide our decision as to which makes most sense. In the first scenario, the total fixed cost of the production is 1,000,000. In the second scenario, the total fixed cost of production is 3,000,000.
Scenario 1 – total fixed cost 1,000,000
Total Variable Cost = (Number of Workers * Worker’s Daily Wage) + Other Variable Costs
50,000(workers) * $80(daily wage) = 4,000,000 + 400,000(other variable cost)
Total Variable Cost = 4,400,000
Average Variable Cost = Total Variable Cost / Units of Output per Day
4,400,000(total variable cost)/200,000(units of output per day)
Average Variable Cost = 22
Average Total Cost = (Total Variable Cost +Total Fixed Cost) / Units of Output per Day
4,400,000(total variable) + 1,000,000(total fixed)/200,000(Units of output)
Average Total Cost = 27
Worker Productivity = Units of Output per Day / Number of Workers
200,000(units of output)/50,000(workers)
Worker Productivity = 4
Profit or loss? = loss of $400,000
Scenario 2 – total fixed cost 3,000,000
Total Variable Cost = (Number of Workers * Worker’s Daily Wage) + Other Variable Costs
50,000(workers) * $80(daily wage) = 4,000,000 + 400,000(other variable cost)
Total Variable Cost = 4,400,000
Average Variable Cost = Total Variable Cost / Units of Output per Day
4,400,000(total variable cost)/200,000(units of output per day)
Average Variable Cost = 22
Average Total Cost =
American Intercontinental University
Unit 3 Individual Project
ECON 220 – Microeconomics
May 19, 2013
Abstract
This paper will provide an analysis of 2 production scenarios. We will calculate costs associated with running a production facility. Furthermore, the analysis will be used to provide a basic understanding of how changes in staffing and productivity impact profit and loss.
Management’s Production Decision
Introduction
This report will provide insight on what your management team should do concerning production costs. We will examine 2 different scenarios and provide our decision as to which makes most sense. In the first scenario, the total fixed cost of the production is 1,000,000. In the second scenario, the total fixed cost of production is 3,000,000.
Scenario 1 – total fixed cost 1,000,000
Total Variable Cost = (Number of Workers * Worker’s Daily Wage) + Other Variable Costs
50,000(workers) * $80(daily wage) = 4,000,000 + 400,000(other variable cost)
Total Variable Cost = 4,400,000
Average Variable Cost = Total Variable Cost / Units of Output per Day
4,400,000(total variable cost)/200,000(units of output per day)
Average Variable Cost = 22
Average Total Cost = (Total Variable Cost +Total Fixed Cost) / Units of Output per Day
4,400,000(total variable) + 1,000,000(total fixed)/200,000(Units of output)
Average Total Cost = 27
Worker Productivity = Units of Output per Day / Number of Workers
200,000(units of output)/50,000(workers)
Worker Productivity = 4
Profit or loss? = loss of $400,000
Scenario 2 – total fixed cost 3,000,000
Total Variable Cost = (Number of Workers * Worker’s Daily Wage) + Other Variable Costs
50,000(workers) * $80(daily wage) = 4,000,000 + 400,000(other variable cost)
Total Variable Cost = 4,400,000
Average Variable Cost = Total Variable Cost / Units of Output per Day
4,400,000(total variable cost)/200,000(units of output per day)
Average Variable Cost = 22
Average Total Cost =
References: Krugman, P., & Wells, R. (2009). Microeconomics. (2nd ed.). Worth Publishers. Retrieved from http://wow.coursesmart.com/9781464129520