Burgin's Broilers produced one more chicken, and as a result its long-run average total cost increased. What must be true?

When total utility _____ at a decreasing rate, marginal utility:

Special Order Total cost data follow for Greenfield Manufacturing Company, which has a normal capacity per period of 20,000 units of product that sell for $54 each. For the foreseeable future, regular sales volume should continue to equal normal capacity. Direct material $268,800 Direct labor 202,000 Variable manufacturing overhead 154,000 Fixed manufacturing overhead (Note 1) 118,800 Selling expense (Note 2) 129,600 Administrative expense (fixed) 50,000 $923,200 Notes: 1. Beyond normal capacity, fixed overhead costs increase $4,500 for each 1,000 units or fraction thereof until a maximum capacity of 24,000 units is reached. 2. Selling expenses consist of a 10% sales commission and shipping costs of $1 per unit. Greenfield pays only one-half of the regular sales commission rates on sales amounting to $3,000 or more. Greenfield's sales manager has received a special order for 2,500 units from a large discount chain at a price of $44 each, F.O.B. factory. The controller's office has furnished the following additional cost data related to the special order: 1. Changes in the product's design will reduce direct material costs by $4 per unit. 2. Special processing will add 10% to the per-unit direct labor costs. 3. Variable overhead will continue at the same proportion of direct labor costs. 4. Other costs should not be affected. a. Present an analysis supporting a decision to accept or reject the special order. (Round computations to the nearest cent.) Differential Analysis Per Unit Total Differential revenue $ Answer Differential costs Direct material $ Answer Direct labor Answer Variable manufacturing overhead Answer Selling: Commission Answer Shipping (F.O.B. factory terms) Answer Total variable cost $ Answer Answer Contribution margin from special order Answer Fixed cost increment: Extra cost Answer Profit on special order $ Answer b. What is the lowest price Greenfield could receive and still make a profit of $5,000 before income taxes on the special order? Round answer to two decimal places, if applicable. $ Answer

Special Order
Total cost data follow for Greenfield Manufacturing Company, which has a normal capacity per period of 20,000 units of product that sell for $54 each. For the foreseeable future, regular sales volume should continue to equal normal capacity.

Notes:
1. Beyond normal capacity, fixed overhead costs increase $4,500 for each 1,000 units or fraction thereof until a maximum capacity of 24,000 units is reached.
2. Selling expenses consist of a 10% sales commission and shipping costs of $1 per unit. Greenfield pays only one-half of the regular sales commission rates on sales amounting to $3,000 or more.

Greenfield's sales manager has received a special order for 2,500 units from a large discount chain at a price of $44 each, F.O.B. factory. The controller's office has furnished the following additional cost data related to the special order:

1. Changes in the product's design will reduce direct material costs by $4 per unit.
2. Special processing will add 10% to the per-unit direct labor costs.
3. Variable overhead will continue at the same proportion of direct labor costs.
4. Other costs should not be affected.

a. Present an analysis supporting a decision to accept or reject the special order. (Round computations to the nearest cent.)

b. What is the lowest price Greenfield could receive and still make a profit of $5,000 before income taxes on the special order?

Round answer to two decimal places, if applicable.

$Answer

Special Order
Total cost data follow for Greenfield Manufacturing Company, which has a normal capacity per period of 20,000 units of product that sell for $54 each. For the foreseeable future, regular sales volume should continue to equal normal capacity.

Notes:
1. Beyond normal capacity, fixed overhead costs increase $4,500 for each 1,000 units or fraction thereof until a maximum capacity of 24,000 units is reached.
2. Selling expenses consist of a 10% sales commission and shipping costs of $1 per unit. Greenfield pays only one-half of the regular sales commission rates on sales amounting to $3,000 or more.

Greenfield's sales manager has received a special order for 2,500 units from a large discount chain at a price of $44 each, F.O.B. factory. The controller's office has furnished the following additional cost data related to the special order:

1. Changes in the product's design will reduce direct material costs by $4 per unit.
2. Special processing will add 10% to the per-unit direct labor costs.
3. Variable overhead will continue at the same proportion of direct labor costs.
4. Other costs should not be affected.

a. Present an analysis supporting a decision to accept or reject the special order. (Round computations to the nearest cent.)

b. What is the lowest price Greenfield could receive and still make a profit of $5,000 before income taxes on the special order?

Round answer to two decimal places, if applicable.

$Answer

A company would like to estimate its total cost equation using customer records.  The company has randomly sampled 28 customer records. Each customer record contains a Customer #, the Order Size, and the Total Cost of the Order.  The analyst remembers from accounting and economics classes taken in college that

TOTAL COST = Fixed Costs + Variable Cost per Unit *Order Size.

The analysis sees that this is a linear relationship where the TOTAL COST depends on the Fixed Costs, which do not depend on order size, and a variable cost per unit, which is multiplied by the Order Size.  The analysis decides to use simple linear regression to estimate the firm’s Total Cost function.  Use the data file, Estimating a Total Cost Regression Model.xlsx to answer the following questions:

1. What is the dependent variable in this analysis? What is the independent variable in this analysis?
2. Use excel to estimate the regression model.  State the estimated total cost function.
3. What is the estimated Fixed Cost for the Company? Remember the fixed costs is independent of output. You can estimate it as the Total Cost when output is “0”. (Look at the regression output produced by Excel for part b.)
4. What is the estimated average unit variable cost for the Company? (Look at the regression output produced by Excel for part b.)

A company would like to estimate its total cost equation using customer records.  The company has randomly sampled 28 customer records. Each customer record contains a Customer #, the Order Size, and the Total Cost of the Order.  The analyst remembers from accounting and economics classes taken in college that

TOTAL COST = Fixed Costs + Variable Cost per Unit *Order Size.

The analysis sees that this is a linear relationship where the TOTAL COST depends on the Fixed Costs, which do not depend on order size, and a variable cost per unit, which is multiplied by the Order Size.  The analysis decides to use simple linear regression to estimate the firm’s Total Cost function.  Use the data file, Estimating a Total Cost Regression Model.xlsx to answer the following questions

1. Develop a 95% confidence interval for the true average unit variable cost. (Look at the regression output produced by Excel for part b.)
2. What percent of the variation in monthly total costs is “explained” by the regression model with monthly production output as the explanatory variable? (Look at the regression output produced by Excel for part )
3. Suppose the plant manager is interested in estimating the mean total costs for several months where output is 30,000 units (i.e., Xp = 30) each month. Develop a 95% confidence interval for the mean total costs for months that average 30,000 units of output.

Special Order
Total cost data follow for Glendale Manufacturing Company, which has a normal capacity per period of 8,000 units of product that sell for $60 each. For the foreseeable future, regular sales volume should continue to equal normal capacity.

Notes:
1. Beyond normal capacity, fixed overhead costs increase $1,800 for each 500 units or fraction thereof until a maximum capacity of 10,000 units is reached.
2. Selling expenses consist of a 6% sales commission and shipping costs of 80 cents per unit. Glendale pays only three-fourths of the regular sales commission on sales totaling 501 to 1,000 units and only two-thirds the regular commission on sales totaling 1,000 units or more.

Glendale's sales manager has received a special order for 1,200 units from a large discount chain at a price of $36 each, F.O.B. factory. The controller's office has furnished the following additional cost data related to the special order:

1. Changes in the product's design will reduce direct material costs $1.50 per unit.
2. Special processing will add 20% to the per-unit direct labor costs.
3. Variable overhead will continue at the same proportion of direct labor costs.
4. Other costs should not be affected.

a. Present an analysis supporting a decision to accept or reject the special order. (Round computations to the nearest cent.)

b. What is the lowest price Glendale could receive and still make a profit of $3,600 before income taxes on the special order?

Round answer to two decimal places, if applicable.

Special Order
Total cost data follow for Greenfield Manufacturing Company, which has a normal capacity per period of 20,000 units of product that sell for $54 each. For the foreseeable future, regular sales volume should continue to equal normal capacity.

Notes:
1. Beyond normal capacity, fixed overhead costs increase $4,500 for each 1,000 units or fraction thereof until a maximum capacity of 24,000 units is reached.
2. Selling expenses consist of a 10% sales commission and shipping costs of $1 per unit. Greenfield pays only one-half of the regular sales commission rates on sales amounting to $3,000 or more.

Greenfield's sales manager has received a special order for 2,500 units from a large discount chain at a price of $44 each, F.O.B. factory. The controller's office has furnished the following additional cost data related to the special order:

1. Changes in the product's design will reduce direct material costs by $4 per unit.
2. Special processing will add 10% to the per-unit direct labor costs.
3. Variable overhead will continue at the same proportion of direct labor costs.
4. Other costs should not be affected.

a. Present an analysis supporting a decision to accept or reject the special order. (Round computations to the nearest cent.)

b. What is the lowest price Greenfield could receive and still make a profit of $5,000 before income taxes on the special order?

Round answer to two decimal places, if applicable.

$Answer

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Suppose a monopolist faces the following demand curve:

Q=200-5P

also, the long run total cost of the monopolist is given by TC=20+2Q-.5Q^2

a) what is the monopolist’s MC function?
b)what is the monopolist MR function?

c) what is the monopolist profit maximizing level of output?
d) what is monopolist profit maximizing level of price?
e) how much profit is the monopoly firm is earning?
f) what is the value of consumer surplus under monopoly?

g) what is the value of the deadweight loss when the market is a monopoly?
h) what is the value of the Lerner index?

2. The market for air conditioners has: Total Cost: TC = 20 + 10Q +(3/4)Q2 Marginal Cost: MC = 10 + (3/2)Q Marginal Revenue: MR = 1,010 – 0.5Q Demand: Q = 4,040 – 4P

2a. If a monopoly controls the market, calculate the equilibrium price and quantity of air conditioners.

2b. Calculate the monopoly profits from part a.

2c. If the government imposed a tax of $80 per air conditioner that the monopoly sells, calculate the equilibrium new price and quantity of air conditioners and the government tax revenue.

2d. Calculate the monopoly profits from part c.

2e. Calculate the minimum tax that the government could charge to make the monopoly produce no output.