Reference no: EM132364768

Tech World (Pty) Ltd is a manufacturer of security equipment. One of its products is a closed-circuit television (CCTV) camera. Thabo is the production manager and he is very interested in managing the long-term cost of the company, because one of his key performance areas is the long-term production planning for the company. Thabo read that long-term average cost is a key indicator of scale economies and that a firm's level of total output together with its associated long-run total cost determine the type of scale economies the firm is experiencing.

Thabo compiled the following table but is unsure how to use the data in the table to determine the different categories of scale economies for the company. He asked for your assistance in this matter.

Capacity Level       Total Product        Long-run total cost

A                        15 000                    56 500

B                         25 000                    80 600

C                         40 000                  120 000

D                         55 000                  140 000   

E                         70 000                  168 650

F                        95 000                   210 000

G                       120 000                  265 200

H                       145 000                  320 450    

I                         160 000                 390 750

J                         185 000                 490 340   

K                         210 000                 590 640

Required

1. Use the data provided in the table together with any other calculations you deem necessary in order to help Thabo to classify the capacity levels into the categories where Tech World will experience economies of scale, constant returns to scale and diseconomies of scale. Provide reasons for each of the classifications.

2. Thabo also wants to know the range of outputs where the firm reaches the lowest feasible cost per unit. Identify for Thabo the minimum efficient scale and the maximum efficient scale output levels in the table.