Reference no: EM1316181
Analyst in the production department for Chevrolet "Aveo" stated that "The marginal cost of a Aveo, given our current volume, is $12,500. Of course, the actual marginal cost depends on the number of cars produced. The larger the number produced, the lower the unit cost because we will spread out our design and tooling costs over more cars."
Economies of scale help firms to lower their production cost per unit and therefore, many firms are merged or in the process of merging. However, some large firms may suffer diseconomies of scale. Explain why some firms may suffer diseconomies of scale. Do you know any examples? Could GM and Ford be an example of diseconomies of scale?
A firm has fixed costs of $60 and variable costs as indicated in the table below.
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Total Output
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Total Fixed Cost
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Total Variable Cost
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Total Cost
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AFC
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AVC
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ATC
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MC
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0
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$0
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1
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45
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2
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85
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3
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120
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4
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150
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5
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185
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6
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225
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7
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270
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8
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325
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9
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390
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10
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465
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1) Complete the table above.
2) Graph AFC, AVC, ATC, and MC. Explain their relationship to one another.
3) Indicate how each of the following would shift the 1) average-variable-cost curve, 2) average-fixed-cost curve, and 3) average-total-cost curve.
a) An increase in transportation costs
b) A decrease in 59.the price of electricity
c) An increase in insurance rates on plant and equipment.
4) List 2 types of businesses that their costs are mostly variable costs, and list 2 types of businesses that their costs are mostly fixed costs.
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