Question 4: A firm has the following short-run production functions. The total fixed cost of the firm is AED 1,800. The firm pays a wage rate of AED 300 per day for each worker. The firm’s only variable cost is the wages of workers. Calculate the following:           

A. Calculate the Average Product of Labor and the Marginal Product of Labor by filling the empty cells in the following table                                                             (0.5x10=5 Marks)                                                                                                                                                                                                                                     

B. Calculate the following:                                                                                        

1.  The Average Fixed Cost (AFC) when the total output is 75 units.                    

……………………………………………………………………………………………………..  ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

2.  The Average Variable Cost (AVC) when the total output is 75 units.                

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3.  The Average Total Cost (ATC) when the total output is 75 units.                       

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4.  Calculate the Total Cost (TC) when the total output is 105 units.                       

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I am considering purchasing a new golf ball manufacturing machine. The total installed cost of this lovely piece of equipment is $2.2 million. My existing machine cost me $1 million 10 years ago, currently has no book value ($0) & a competitor will pay me $1.2 million for it before taxes but I am subject to a 40% tax rate.

            Because of this new piece of equipment, my annual sales for the next 5 years are expected to be $900,000 more than what I am currently making with my current equipment. Expenses (for the new equipment) will amount to 50% of that increased revenue. I will undergo no change in net working capital & will depreciate the new equipment using a 5 year-recovery period under MACRS. My cost of capital is 11% & there is no terminal cash flow expected.

Determine my initial investment for the new equipment

Determine my Operating cash inflows for the new equipment (consider depreciation in year 6)

What’s my payback period?

What’s the NPV?

What’s the IRR? (to the nearest whole number)

Q1. Assume a perfectly competitive firm's total cost (TC) for differents levels of oututes Q is given by:

Q TC

0 50

1 100

2 140

3 170

4 190

5 210

6 230

7 260

8 300

9 350

10 410

In the table format for the range of output (Q) provided determine: average total costs, average fixed cost, average variable costs, and marginal costs. At a price of $35 how many units will be produced in the short run? At this price how many units will be produced in long run?

Princeton Manufacturing Company summarizes the following total cost data for the month of March. Princeton has a normal capacity per month of 25,000 units of product that sell for $80 each. For the foreseeable future, sales volume should equal normal capacity of production.

Direct material $590,000 Direct labor 330,000 Variable overhead 170,000 Fixed overhead (Note 1 280,000 Selling expense (Note 2 160,000 Administrative expense (fixed) 112,000 $1,642,000 Notes: 1. Beyond normal capacity, fixed overhead cost increases $12,700 for each 1,000 units or fraction thereof until a maximum capacity of 30,000 units is reached. 2. Selling expenses are a 5% sales commission plus shipping costs of $2.40 per unit.

a. Using the information available, prepare a formula to estimate Princeton's total cost at various production volumes up to normal capacity.

Total cost = $Answer 0 + $Answer 0 X # of units.

b. Prove your answer in requirement (a) relative to the total cost figure for 25,000 units.

Total cost = Fixed cost + Variable cost Answer 0 = Answer 0 + Answer 0

c. Calculate the planned total cost at 20,000 units. $Answer 0

d. If Princeton were operating at normal capacity and accepted an order for 500 more units, what would it have to charge for the order to earn a net income before income tax of $16 per unit on the new sale? Required selling price $Answer 0 per unit

During 2018, Barden Building Company constructed various assets at a total cost of $10,500,000. The weighted average accumulated expenditures (WAAE) on assets qualifying for capitalization of interest during 2018 were $7,000,000. The company had the following debt outstanding at December 31, 2018: • 10%, 5-year note to finance construction of various assets, dated January 1, 2017, with interest payable annually on January 1 $4,500,000 • 12%, twelve-year bonds issued at par on December 31, 2009, with interest payable annually on December 31 6,000,000 • 9%, 4-year note payable, dated January 1, 2016, with interest payable annually on January 1 3,500,000 Instructions Compute the amounts of each of the following (show computations). 1. Actual interest 2. Average Interest Rate 3. Avoidable interest 4. Interest to be capitalized during 2018 5. Interest expense reported 2018

During 2020, Maria Building Company constructed various assets at a total cost of $12,600,000. The weighted average accumulated expenditures on assets qualifying for capitalization of interest during 2020 were $8,347,000. The company had the following debt outstanding at December 31, 2020:

Compute the amounts of each of the following.

During 2020, Barden Building Company constructed various assets at a total cost of $14,700,000. The weighted average accumulated expenditures on assets qualifying for capitalization of interest during 2020 were $9,800,000. The company had the following debt outstanding at December 31, 2020:

1.   10%, 5-year note to finance construction of various assets,

      dated January 1, 2020, with interest payable annually on January 1                     $6,300,000

2.   12%, ten-year bonds issued at par on December 31, 2014, with interest

      payable annually on December 31                                                                            7,000,000

3.   9%, 3-year note payable, dated January 1, 2019, with interest payable

      annually on January 1                                                                                               3,500,000

Instructions - Compute the amounts of each of the following (show computations).

1. Avoidable interest.

2. Total interest to be capitalized during 2020.

How do business managers use normal distribution to evaluate an average total cost (ATC) of a firm.?

The hospital has acquired medical diagnostic equipment that cost $2,000,000 total. In addition, the hospital had to pay $45,000 to have the equipment shipped to it from the manufacturer, and $60,000 to install the equipment. It is expected that the equipment has a 7-year useful life, and a $200,000 salvage value. Calculate the ten years of depreciation using straight line, double declining balance, and sum-of-the-years digits.

1

2

3

4

5

6

7

1

2

3

4

5

6

7

1

2

3

4

5

6

7

1. Suppose a firm has the following total cost function: TC = 100 + 4q^2

a. What is the minimum price necessary for the firm to earn profit? You must explain

your reasoning and process as to how your found the price you found.

b. Below what price will the firm shut down in the short run?