A Firm Is About to Undertake the Manufacture of a Product

question 13

Essay

A firm is about to undertake the manufacture of a product, and is weighing three capacity alternatives: small job shop, large job shop, and repetitive manufacturing. The small job shop has fixed costs of $3,000 per month, and variable costs of $10 per unit. The larger job shop has fixed costs of $12,000 per month and variable costs of $3 per unit. The repetitive manufacturing plant has fixed costs of $30,000 and variable costs of $1 per unit. Demand for the product is expected to be 1,000 units per month with "moderate" market acceptance, but 2,000 under "strong" market acceptance. The probability of moderate acceptance is estimated to be 60 percent; strong acceptance has a probability of 40 percent. The product will sell for $25 per unit regardless of the capacity decision. Which capacity choice should the firm make?

Interpret diagrams related to cost curves, including total costs, average costs, and marginal costs.

Understand economies and diseconomies of scale and their impact on firm costs over different ranges of output.

Understand the implications and benefits of early educational interventions such as Head Start programs.

Comprehend the complex interplay between genetics and environment in determining intelligence.

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Definitions:

Self-Interests

The consideration of one's personal advantage or benefit in decisions or actions.

Leadership Effectiveness

The degree to which a leader is able to achieve organizational or team objectives through the direction and motivation of others.

Gender Differences

Variations in characteristics, behaviors, and roles traditionally associated with being male or female in a particular culture.

Laissez-Faire Leadership

A style of leadership that involves the avoidance or absence of leadership.