DigiWatch Plans to Open a New Production Facility to Produce

question 52

Essay

DigiWatch plans to open a new production facility to produce digital watches. Based on previous experience, the firm estimates that the fixed costs of the plant will be $366,000 per year, and that average variable cost will be: AVC = 7.00 + .002Q.
(a) Compute the total cost and average cost for the first year of production at an output of 6,000 watches.
(b) In the second year of production, DigiWatch revamped its assembly operations to improve efficiency. The firm produced 8,000 watches at a total cost of $498,000. How much did the revamp reduce average cost in the second year?

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Definitions:

Borderless World

The concept of a world where barriers to trade, communication, and movement are minimal or non-existent, promoting global integration.

Kenichi Ohmae

Kenichi Ohmae is a Japanese organizational theorist, consultant, and the author of several books on business strategy renowned for his work on global strategy and the "borderless world."

Capital Flows

Movements of money for the purpose of investment, trade, or business production across international borders.

Inflationary Recessions

Periods characterized by rising prices (inflation) occurring simultaneously with a decline in economic activity and employment (recession).