Microeconomics - Marginal Cost of Production We are a large company producing co
ID: 1225220 • Letter: M
Question
Microeconomics - Marginal Cost of Production
We are a large company producing consumer products for supermarket house brands such as ShopRite, Acme, and Kirkland. Altogether we own five factories for producing paper towels. Altogether we own five factories, for producing paper towels. All of our factories have about the same capacity.
A) Because of the recent economic downturn, we closed two of the factories and the remaining three are still in operation. Which three factories do you expect to be still in operation- explain your answer.
B) Prices (the wholesale price per case that we can get from the companies who buy from us) have just gone up, so we decide to increase output and resume production in one more factory. When we do so, what will our marginal cost of production be in dollars per case? Explain.
C) Unfortunately, our professor forgot to tell us what the new price per case is. That's not a big problem; however, because we can calculate approximately what the new price is: the new price is not less than $------/case and not more than $-------- /case. Explain carefully how you got those answers? The explanation is more important than the numbers.
Paper Processing Factory Production Cost/Case Factory No. 1 Ilinois $15.00 Factory No. 2 New Jersey $16.05 Factory No. 3 Ohio-Colombus $18.00 Factory No. 4 Ohio-Dayton $14.25 Factory No. 5 Pennsylvania $19.25Explanation / Answer
Question A) Factory No. 1 at Ilinois, Factory No. 2 at New Jersey and Factory No. 4 at Ohiyo-Dayton will be still in operation.
Explanation:- The Production cost per case in Factory No. 1, Factory No. 2 and Factory No. 4 is less than the production cost in Factory No. 3 and Factory No. 5
Accordingly, Factory No. 3 and Factory No. 5 will be closed because the production costs of these two factories are very high.
Conclusion:- Factory No. 1 at Ilinois, Factory No. 2 at New Jersey and Factory No. 4 at Ohiyo-Dayton will be still in operation due to their low cost of production.
Question B) For a firm to be in the competitive market, Price (P) must be equals to marginal cost (MC). Thus, the marginal cost of production in one more factory will be equal to the price of paper towel or more than the price of paper towel (if possible).
Conclusion:- Marginal Cost (MC) = Price of Paper Towel (P).