ABC company is considering producing a new range of smartphones that will require it to build a new factory. Feasibility studies have been done on the factory which cost $5 million. The studies have found the following:

1. The factory will cost $25 million and will have a useful life of 20 years.

2. The land where the factory will go is currently used as a carpark for workers and it is assumed that the company will have to pay $200000 per year for their workers to park in a nearby carpark.

3. The factory will be depreciated on a straight line basis and will have a salvage value of $0 but it is believed that most of it can be sold for scrap after 20 years for $50000.

4. Due to the nature of the business they are in, they will have to perform some environmental tests to make sure that some of the chemicals they are using are not entering the ground water around the factory. These tests will be performed every 5 years and cost $625000.

5. Through the building of this factory and the selling of the phones it produces, it’s revenue will increase by $5 million in year 1 and remain at this level for the operational life of the factory.

6. The extra costs that the company accrues per year due to the project are $435000 for labour, $50000 for overhead like power and water bills and marketing costs for the new line of phones will be $500000 per year but will decrease by $15000 per year as the phone gains greater penetration.

7. The company’s current cost of capital is 8% per year.

8. The tax rate is 30%.

9. The project requires an initial investment in working capital of $1000000 that is returned in year 20.

Calculate the break even point for the following variables:

a. The cost of capital.

b. The yearly revenue.

c. The labour cost.

1. Figure the costs in the green shaded cells

   At what quantity does diminishing marginal returns take affect?

2. Short-run Costs
   Quantity	Total Fixed Cost	Average Fixed Cost	Total Variable Cost	Average Variable Cost	Total Cost	Average Total Cost	Marginal Cost
   0	$ 140.00	-	-	-		-	-
   5			$ 100.00
   10			180.00
   15			245.00
   20			300.00
   25			350.00
   30			405.00
   35			467.50
   40			540.00
   45			627.50
   50			732.50
   55			862.50
   60			1,027.50

II.We discussed the following table in the lecture/presentation. Just for your own practice, try filling out the columns for each:

Quantity Fixed Cost Variable Cost Total Cost Average Fixed Cost   Average Variable Cost   Average Total Cost Marginal Cost
1 100 10

2 100 15

3 100   25

4 100   40

5 100 60

6 100 85

7 100 115

8 100 150

9 100 190

10 100 235

Following are the questions you should be able to answer:

1.What happens to Average Fixed Cost as quantity increases?
2.What happens to Average Variable Cost as quantity increases?
3.What happens to Average Total Cost as quantity increases?
4.What is the distance between Average Variable Cost and Average Total Cost?
5.What is the shape of Average Total Cost? Why is it shaped that way? (In other words, what is going on until Q=7? What happens after Q=7?)
6.What is the relationship between Marginal Cost and Average Total Cost?
7.What is the relationship between Marginal Cost and Average Variable Cost?
8.What happens to Average Total Cost in the Long Run? What is the shape? Why?

1. Demand: P=120-Q    Total Cost: TC=Q²

Marginal Revenue:  MR=120-2Q           Marginal Cost: MC=2Q

What is the amount of profit for this monopolist?

2. Demand: P=120-Q                                 Total Cost: TC=Q²

Marginal Revenue:  MR=120-2Q           Marginal Cost: MC=2Q

For this monopolist, the profit-maximizing price is ________ and the profit-maximizing quantity is _________.

3. Demand: P=120-Q                                 Total Cost: TC=Q²

Marginal Revenue:  MR=120-2Q           Marginal Cost: MC=2Q

Compared to perfect competition where P=MC, what is the amount of deadweight loss caused by this monopolist _________.

20. A common kitchen trick to ripening fruit is to place unripe fruit near a piece of ripe fruit on the counter. This greatly increases the rate of ripening for the unripe fruit. How does this observation provide evidence that ethylene is a gas?

• Do you think the net effect of the new on-campus stadium at CSU for the economy of city of Fort Collins has been positive, negative, or near zero?
• Should the NFL and MLS share stadiums? Why or why not?

Hedonic Price Method:

a. Explain how the HPM can be used to measure the effects on housing values for homes that are located near

noisy airports.

b. What are some problems with the HPM approach (explain 2 problems)?

Guinea worm is one of the human diseases that is on the verge of eradication. There is no preventive vaccine or treatment available for the disease. Discuss the public health prevention and control efforts that have enabled the near eradication of Guinea worm disease globally.

]

Exercise 23-6

On January 1, 2017, the Hardin Company budget committee has reached agreement on the following data for the 6 months ending June 30, 2017.

Sales units: First quarter 5,700; second quarter 6,200; third quarter 7,200
Ending raw materials inventory: 40% of the next quarter’s production requirements
Ending finished goods inventory: 25% of the next quarter’s expected sales units
Third-quarter production: 7,670 units.

The ending raw materials and finished goods inventories at December 31, 2016, follow the same percentage relationships to production and sales that occur in 2017. 4 pounds of raw materials are required to make each unit of finished goods. Raw materials purchased are expected to cost $4 per pound.

Prepare a production budget by quarters for the 6-month period ended June 30, 2017.

HARDIN COMPANY
Production Budget

June 30, 2017
For the Quarter Ending June 30, 2017
For the Six Months Ending June 30, 2017
Quarter
1
2
Six Months

Total Materials Required
Direct Materials Per Unit
Expected Unit Sales
Total Required Units
Desired Ending Direct Materials
Beginning Finished Goods Unit
Desired Ending Finished Goods Unit
Beginning Direct Materials
Direct Materials Purchases
Required Production Units

Add
Less
:

Beginning Direct Materials
Expected Unit Sales
Total Materials Required
Desired Ending Finished Goods Unit
Required Production Units
Beginning Finished Goods Unit
Total Required Units
Desired Ending Direct Materials
Direct Materials Per Unit
Direct Materials Purchases

Beginning Direct Materials
Total Materials Required
Desired Ending Finished Goods Unit
Direct Materials Per Unit
Direct Materials Purchases
Expected Unit Sales
Required Production Units
Total Required Units
Beginning Finished Goods Unit
Desired Ending Direct Materials

Add
Less
:

Direct Materials Per Unit
Required Production Units
Desired Ending Finished Goods Unit
Direct Materials Purchases
Expected Unit Sales
Total Materials Required
Beginning Direct Materials
Total Required Units
Beginning Finished Goods Unit
Desired Ending Direct Materials

Total Required Units
Total Materials Required
Desired Ending Direct Materials
Required Production Units
Direct Materials Per Unit
Direct Materials Purchases
Expected Unit Sales
Desired Ending Finished Goods Unit
Beginning Finished Goods Unit
Beginning Direct Materials

LINK TO TEXT

Prepare a direct materials budget by quarters for the 6-month period ended June 30, 2017.

HARDIN COMPANY
Direct Materials Budget

For the Quarter Ending June 30, 2017
For the Six Months Ending June 30, 2017
June 30, 2017
Quarter
1
2
Six Months

Direct Labor Time Per Unit
Beginning Direct Materials
Units to be Produced
Total Direct Labor Cost
Cost Per Pound
Desired Ending Direct Materials
Total Materials Required
Direct Labor Cost Per Hour
Direct Materials Purchases
Direct Materials Per Unit
Total Required Direct Labor Hours
Total Cost of Direct Materials Purchases
Total Pounds Needed for Production

Desired Ending Direct Materials
Units to be Produced
Direct Materials Purchases
Total Materials Required
Cost Per Pound
Direct Materials Per Unit
Total Required Direct Labor Hours
Beginning Direct Materials
Direct Labor Time Per Unit
Total Cost of Direct Materials Purchases
Direct Labor Cost Per Hour
Total Direct Labor Cost
Total Pounds Needed for Production

Direct Materials Purchases
Direct Labor Cost Per Hour
Total Pounds Needed for Production
Cost Per Pound
Units to be Produced
Beginning Direct Materials
Direct Materials Per Unit
Direct Labor Time Per Unit
Total Direct Labor Cost
Total Cost of Direct Materials Purchases
Total Materials Required
Total Required Direct Labor Hours
Desired Ending Direct Materials

Add
Less
:

Beginning Direct Materials
Cost Per Pound
Total Direct Labor Cost
Direct Materials Purchases
Total Cost of Direct Materials Purchases
Direct Labor Cost Per Hour
Direct Materials Per Unit
Total Required Direct Labor Hours
Units to be Produced
Desired Ending Direct Materials
Total Materials Required
Total Pounds Needed for Production
Direct Labor Time Per Unit

Total Materials Required
Cost Per Pound
Total Pounds Needed for Production
Total Required Direct Labor Hours
Direct Labor Cost Per Hour
Direct Materials Purchases
Desired Ending Direct Materials
Direct Labor Time Per Unit
Direct Materials Per Unit
Units to be Produced
Beginning Direct Materials
Total Cost of Direct Materials Purchases
Total Direct Labor Cost

Add
Less
:

Direct Labor Time Per Unit
Units to be Produced
Total Materials Required
Direct Materials Purchases
Direct Materials Per Unit
Total Direct Labor Cost
Total Cost of Direct Materials Purchases
Total Pounds Needed for Production
Beginning Direct Materials
Total Required Direct Labor Hours
Cost Per Pound
Desired Ending Direct Materials
Direct Labor Cost Per Hour

Beginning Direct Materials
Total Pounds Needed for Production
Total Required Direct Labor Hours
Units to be Produced
Cost Per Pound
Total Materials Required
Desired Ending Direct Materials
Direct Labor Cost Per Hour
Direct Materials Purchases
Direct Materials Per Unit
Direct Labor Time Per Unit
Total Cost of Direct Materials Purchases
Total Direct Labor Cost

Beginning Direct Materials
Total Materials Required
Cost Per Pound
Direct Labor Time Per Unit
Direct Materials Purchases
Desired Ending Direct Materials
Direct Materials Per Unit
Direct Labor Cost Per Hour
Total Cost of Direct Materials Purchases
Total Direct Labor Cost
Total Pounds Needed for Production
Total Required Direct Labor Hours
Units to be Produced
$
$

Total Materials Required
Direct Materials Purchases
Direct Labor Cost Per Hour
Total Cost of Direct Materials Purchases
Desired Ending Direct Materials
Beginning Direct Materials
Total Direct Labor Cost
Direct Materials Per Unit
Total Pounds Needed for Production
Total Required Direct Labor Hours
Units to be Produced
Cost Per Pound
Direct Labor Time Per Unit
$
$
$

LINK TO TEXT

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