variable cost per unit 3, sales per unit 46, fixed exp $3000 and beginning cash $1500....

variable cost per unit 3, sales per unit 46, fixed exp $3000 and beginning cash $1500.

1. is there any limit to how much units you can produce given the data here

2. what principle of economics dictates your answer in question 1

3. what is the walmart effect?

4. what is a monopsony?

Solutions

Expert Solution

Working capital = $1500

Variable cost per unit = $3

So, maximum possible output = 1500/3 = 500 units

It means that there is a limit of production with the given data and it is 500 units. Next round of production will take place when the output will be sold and revenue will be generated. Once meeting the fixed cost, the next round of production can be started again.

Principle of scarce resources dictates the situation here. It can be identified that limited funds as a scarce resource, is limiting the production capabilities.

Walmart effect refers to the effect upon smaller firms when a bigger firm enters into the marker or in their areas of operation. A bigger firm has a higher scale of operation, higher efficiency and capital to operate and it can drive other smaller firms out of the market. This is termed as Walmart effect.

Monopsony is a market condition where there is only one buyer of the resources, products or services. Here, single buyer has all the bargaining power and the buyer is able to drive down the prices of the resources. It happens in the labor market when one big company hires workers and there is no other company in that domain.

Rahul Sunny answered 1 year ago

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