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AFour Company decides to produce and sell food blenders and is considering three different types of production facilities ("plants”)

Economics Oct 31, 2020

AFour Company decides to produce and sell food blenders and is considering three different types of production facilities ("plants”). Plant A is a labor-intensive facility, employing relatively little specialized capital equipment. Plant B is a semi-automated facility that would employ less labor than A but would also have higher capital equipment costs. Plant C is a completely automated facility using much more high-cost, high-technology capital equipment and even less labor than B. Information about the operating costs and production capacities of these three different types of plants is shown in the following table. PLANT A PLANT B PLANT C UNIT VARIABLE COST $9 $8 $7 TOTAL FIXED COST $ 150,000 $ 250,000 $450,000 ANNUAL CAPACITY 75,000 150,000 350,000 Determine the average total cost schedules for each plant type to fill empty columns of the following table. (1 mark each) Note: If necessary, round to two decimal places. SHORT-RUN AVERAGE TOTAL COST (SRATC) OUTPUT (Q) PLANTA PLANT B PLANT C Click Save and Submit to save and submit. Click Save All Answers to save all answers. Save All Answ
Question Completion Status: TOITLITLD CUJT PTJU, VO Pzuo,vou PTJO,00 ANNUAL CAPACITY 75,000 150,000 350,000 Determine the average total cost schedules for each plant type to fill empty columns of the following table. (1 mark each) Note: If necessary, round to two decimal places. SHORT-RUN AVERAGE TOTAL COST (SRATC) OUTPUT (Q) PLANT A PLANT B PLANT C 50,000 100,000 I 150,000 200,000 250,000 Τ Τ Τ Arial HBC 3 (12pt) T-E- E Click Save and Submit to save and submit. Click Save All Answers to save all answers. Save All

Expert Solution

Average Total Cost = (Total Fixed Cost + Total Variable Cost) / Quantity

Plant A

Total variable cost
9 * 50000 = 450000
Total Fixed Cost = 150000

Total Cost
450000 + 150000 = 600000

ATC = 600000 / 50000
= 12

Plant B

Total Cost
(8 * 50000) + 250000 = 650000

ATC
650000 / 50000 = 13


Plant C
Total Cost
(7 * 50000) + 450000 = 800000

ATC
800000 / 50000 = 16

We can complete the table similarly

  Plant A   Plant B   Plant C  
Fixed Cost 150000   250000   450000  
Variable Cost 9/unit   8/unit   7/unit  
Capacity 75000   150000   350000  
             
Output Total Cost ATC Total Cost ATC Total Cost ATC
50000 600000 12 650000 13 800000 16
100000 1050000 10.5 1050000 10.5 1150000 11.5
150000 1500000 10 1450000 9.67 1500000 10
200000 1950000 9.75 1850000 9.25 1850000 9.25
250000 2400000 9.6 2250000 9 2200000 8.8

The figures indicated in the red color are irrelevant because they are for the production quantity which exceeds the capacity of the plant.

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