Assignment Task:
Task:
Learning Outcomes
The learner will be able to:
Given a specific business situation, calculate the point of profit maximization in the short term. Show how the profit maximizing firm responds in the long run as the costs of one or more of the inputs changes.
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Get Help Now!A company produces gold picture frames. The cost per picture frame is:
Materials $9
Packaging $1
Decorations on the frame $5
Shipping and handling $1.5
Each worker earns $30,000 annually in salary and benefits. The number of workers changes based on the level of production. This means this is a variable cost. The artist who creates the designs on the picture frames is paid $25,000 annually. Senior management are paid a total of $200,000 annually. Other annual costs are:
Taxes and Insurance $17,000
Utilities $50,000
Rent $300,000
Miscellaneous Overhead Expenses $24,000
The following production is possible:
No. Of
Workers
0 1 2 3 4 5 6 7
No. Of Picture Frames that can be made
0 10,00
0
21,000 35,000 50,000 65,000 73,000 70,000
1. Using all this information complete the following table and answer the questions. It would be easier if you set this up in an Excel spreadsheet. When you are done, you must submit it as a Word document with your answers. You will use this table to answer questions 2 and 3. (4 marks)
Your first step is to identify which are fixed costs and which are variable costs. If you will have to keep paying the cost whether you produce 0 units of the product or 10,000 units, then it is a fixed cost. In the short run you have to keep paying it. In the long run you may be able to change these fixed costs. A variable cost changes based on how much of the product you produce. But the variable costs may not change all at the same time.
Why does quantity decrease when the 7 th worker is added? What is the term for this effect?
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