-Refer to Table 7-9

question 285

Essay

-Refer to Table 7-9. Clock It To Me manufactures clock radios. The table above shows estimates of fixed cost per period and average variable cost for three possible plant sizes.
a. You are employed as the company's cost accountant and have been asked to prepare cost estimates for various output levels for each of the three possible plant sizes. Record your calculations in the table below.
Average Cost of Production
b. For each of the three output levels, which plant size will generate the lowest average total cost of production?
c. Suppose the firm currently sells 8000 clock radios per period (using the optimal plant size for this output level). Now, however, it has just secured a long-term contract to supply 20 000 clock radios per period. In the short run, what is the average total cost of producing 20 000 clock radios? Provide a numerical value based on your answer in part a.
d. What happens to average total cost of production in the long run? Provide a numerical value based on your answer in part a.

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Definitions:

Domestic Price

Domestic price is the price of a good or service within a country, influenced by local supply and demand conditions, taxes, and subsidies.

Exports and Imports

involve the selling of goods and services to other countries (exports) and buying goods and services from other countries (imports), crucial components of a country's economy.

Frederic Bastiat

Frederic Bastiat was a French economist and writer known for his advocacy of free markets and critique of protectionism, best remembered for his works such as "The Law" and "Economic Sophisms."

Standard of Living

The level of wealth, comfort, material goods, and necessities available to a person, group, or society.