Question

The variety of Riverside Ranger logo T-shirts includes 12 different designs. Setup between designs takes one hour (and $24,000), and, after setting up, you can produce 1,000 units of a particular design per hour (at a cost of $11,000). Note: Assume Q denotes the quantity produced of a particular design.

Which of the following best represents the average cost function for producing any single design?

AC=$24,000+$11

AC=$24,000Q+$11

AC=$24,000+$11,000

AC=$24,000+$11Q

Based on this information, production in any one single design (does, does not) economies of scale.

Answer 1

We know fixed cost =24000

variable cost =11000 for 1000 units

average variable cost=11

Average cost=24000/Q+11

ans is B

yes economies of scale exist