Compare the fixed and marginal costs

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Reference no: EM132151894

Question: Joe works for a firm that manufactures glass fixtures. He is about to help design a new production facility and must decide on the type of production process to install. One the one hand, he could build a big plant, install a great deal of machinery and use only a small amount of labor to produce his product. This capital-intensive production process would allow him to produce output at an average cost of LRAC = (500/Q) + 2Q. On the other hand, he could build a small plant, install less machinery and hire more labor. If he decides to use this labor-intensive production process, his average cost will be given by LRAC = (300/Q) + 4Q. Compare the fixed and marginal costs across the two production processes. Which production process should Joe choose? Explain the logic behind your answer.

Reference no: EM132151894

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