Question

Owen owns a business making coffee mugs. He is currently trying to figure out his cost...

Owen owns a business making coffee mugs. He is currently trying to figure out his cost structure for the month. Each month, he has to pay $1,000 for rent and machinery. For every mug he produces, it costs him $20 in material and $10 in wages.

(a) Which costs are fixed? Which costs are variable? Explain. (b) What is the total cost function? (c) Derive the average total cost, average variable cost, and average fixed cost functions.

Homework Answers

Answer #1

a ) Ans: Rent and machinery costs are fixed costs and material cost and wages are variable costs.

Explanation:

Fixed costs are those costs which remain constant throughout the subsequent level of production whereas variable costs are varying with the level of production.

b ) Ans: TC = FC + VC (q )

Explanation:

Total cost function = total fixed cost + variable cost ( q)

Where , q = number of units produced

c ) Ans: ATC = TC / Q , AVC = TVC / Q and AFC = TFC / Q

Explanation:

In the above functions;

ATC = Average total cost

TC = Total costs

AVC = Average variable costs

TFC = Total fixed cost

q = Number of units produced or quantity

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The Medford Mug Company is an old-line maker of ceramic coffee mugs. It imprints company logos...
The Medford Mug Company is an old-line maker of ceramic coffee mugs. It imprints company logos and other sayings on mugs for both commercial and wholesale markets. The firm has the capacity to produce 50 million mugs per year, but the recession has cut production and sales in the current year to 15 million mugs. The following table shows the operating statement for 2001: MEDFORD MUG COMPANY Income Statement Year Ending 2001 ($ in Millions) Sales (15 million @ $2)...
1. Ralph owns a small pizza restaurant, where he works full-time in the kitchen. His total...
1. Ralph owns a small pizza restaurant, where he works full-time in the kitchen. His total revenue last year was $100,000, and his rent was $3,000 per month. He pays his one employee $2,000 per month, and the cost of ingredients and overhead averages $500 per month. Ralph could earn $35,000 per year as the manager of a competing pizza restaurant nearby. His total explicit costs for the year were a. $24,000. b. $66,000. c. $72,000. d. $60,000. e. $6,000....
Ben is a producer in the perfectly competitive market for calzones. No matter what he produces,...
Ben is a producer in the perfectly competitive market for calzones. No matter what he produces, Ben must pay rent for the factory he uses. The amount of wages he pays employees depends only on how much demand there is for a calzone, with the workers being employed on a part-time, casual basis. Assume rent, wages, and the ingredients for making calzones are the only costs Ben incurs. Select the item from the list provided to make the following statements...
Read about the Medford Mug Company. After reading the narrative work through the following questions. Construct...
Read about the Medford Mug Company. After reading the narrative work through the following questions. Construct an Income Statement for the year ended 2017 and calculate the new President’s bonus for 2017.   Hint: Use the Income Statement pictures for year ending 2016 as an example and show the full statement. 1. Calculate the value of the ending inventory of mugs at the end of 2017. Please show all your work. 2. Take all of the factors into account and evaluate...
Seth owns a local business that provides email updates on surf conditions. He is the only...
Seth owns a local business that provides email updates on surf conditions. He is the only supplier of these email updates in Santa Barbara and Goleta, which gives him a monopoly in both cities. The marginal cost of producing another update is zero (and we'll ignore fixed costs). The inverse demand for these updates in Santa Barbara is p = 67 - q and the inverse demand in Goleta is p = 31 - 4q. Suppose Seth charges different uniform...
Shawn owns a business refurbishing Navy Surplus calculators. He has a contract to buy the calculators...
Shawn owns a business refurbishing Navy Surplus calculators. He has a contract to buy the calculators from government sources and could purchase up to 4,200 a month. He paid $5.20 per calculator. He invested $42,400 in an automated engraving machine and started selling personalized calculators through a network of stores. On average, his resellers charged 55% margins and were content to sell at his recommended retail prices as long as they received their margins. It costs him $1.32 in labor...
Blossom Diesel owns the Fredonia Barber Shop. He employs 6 barbers and pays each a base...
Blossom Diesel owns the Fredonia Barber Shop. He employs 6 barbers and pays each a base rate of $1,470 per month. One of the barbers serves as the manager and receives an extra $500 per month. In addition to the base rate, each barber also receives a commission of $8.45 per haircut. Other costs are as follows. Advertising $290 per month Rent $920 per month Barber supplies $0.45 per haircut Utilities $190 per month plus $0.10 per haircut Magazines $20...
Oriole Diesel owns the Fredonia Barber Shop. He employs 5 barbers and pays each a base...
Oriole Diesel owns the Fredonia Barber Shop. He employs 5 barbers and pays each a base rate of $1,510 per month. One of the barbers serves as the manager and receives an extra $580 per month. In addition to the base rate, each barber also receives a commission of $8.40 per haircut. Other costs are as follows. Advertising $300 per month Rent $1,020 per month Barber supplies $0.45 per haircut Utilities $150 per month plus $0.15 per haircut Magazines $30...
Sunland Diesel owns the Fredonia Barber Shop. He employs 4 barbers and pays each a base...
Sunland Diesel owns the Fredonia Barber Shop. He employs 4 barbers and pays each a base rate of $1,410 per month. One of the barbers serves as the manager and receives an extra $580 per month. In addition to the base rate, each barber also receives a commission of $10.30 per haircut. Other costs are as follows. Advertising: $230 per month Rent: $1,100 per month Barber supplies: $0.40 per haircut Utilities: $160 per month plus $0.10 per haircut Magazines: $30...
Cost Concepts 01.Khaled has developed a new technology device that is so exciting he is considering...
Cost Concepts 01.Khaled has developed a new technology device that is so exciting he is considering quitting his job in order to produce and market it on a large-scale basis. Khaled will rent a small factory for 1,000dhs per month for production purposes. Utilities will cost 500dhs per month. Khaled has already taken an industrial design course at Dubai Men’s College to help prepare for this venture. The course cost 800dhs. Khaled will rent production equipment at a monthly cost...