A company produces chairs. The cost per chair is: Materials $15 Packaging $1.00 Decorations $5 Shipping and handling $10.00 Each worker earns $28,500 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 chairs is paid $17,500 annually. Senior management are paid a total of $300,000 annually. Other annual costs are: Taxes and Insurance $17,000 Utilities $60,000 Rent $400,000 Miscellaneous Overhead Expenses $24,000 The following production is possible: Number 0 2 3 5 6 of workers Number 0 12,000 24,000 31,000 46,000 54,000 63,000 59,000 of chairs that can be made Question 1 (6 marks) 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. Your first step is to identify which are fixed costs and which are variable costs. If you have to keep paying some costs whether you produce 0 units of the product or 10,000 units, then they are fixed costs. In the short run you have to keep paying fixed costs. 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. Marginal cost measures the change between two numbers, so you will be calculating 7 numbers, using the 8 levels of workers. The answers in your table must be calculated to two decimal places. sibility: Good to go Q Search O LGces chairs Microeconomics questions v Search ces Mailings Review View Help E . EVENT 9 Find Normal No Spacing Heading 1 Heading 2 Title S'c Replace Select Paragraph Styles Editing Question 1 (6 marks) 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. Your first step is to identify which are fixed costs and which are variable costs. If you have to keep paying some costs whether you produce 0 units of the product or 10,000 units, then they are fixed costs. In the short run you have to keep paying fixed costs. 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. Marginal cost measures the change between two numbers, so you will be calculating 7 numbers, using the 8 levels of workers. The answers in your table must be calculated to two decimal places. # of Q TVC AVC AFC TC ATC MC workers TVC/Q FC/Q FC+VC TC/Q ATC/AQ 0 0 1 11000 2 24000 3 31000 4 46000 5 54000 6 63000 7 59000 Question 2 (1 mark) What is the lowest price you would be willing to start producing this new product? Be precise. Don't round up to the nearest dollar. Accessibility: Good to go Q Search O W\ferences Mailings Review View Help Normal No Spacing Heading 1 Heading 2 Title A Paragraph Styles If the price per chair was fixed at $85, what would you do? Remember, in the short run you can't alter fixed costs, you can just decide where to set the level of production. You need to calculate total revenue and profit or loss for each level as you are given the average revenue. Remember to STATE both what level of production you would choose and what DOLLAR PROFIT you would make. (1 mark) # of workers PXQ price FC+VC $ Profit or Loss TR AR Q TC TP 1 2 3 4 5 6 Question 5 (1 mark) If the price per chair was fixed at $52.00, what would you do in the SHORT RUN? Again, remember that you have to keep paying your fixed costs in the short run. Fill in the table completely. Remember to STATE both what level of production you would choose and what DOLLAR PROFIT you would make. (1 mark) # of workers PXQ price FC+VC $ Profit or Loss TR AR Q TO TP 0 1 2 3 4 5 Question 6 (1 mark) : On Accessibility: Good to go Q Search LGduces chairs Microeconomics questions v Search ences Mailings Review View Help 9 Find Normal No Spacing Heading 1 Heading 2 Title Gc Rep Sele Paragraph Styles Editir Question 6 (1 mark) If the price per chair was fixed at $38.00, what would you do in the SHORT RUN? Again, remember that you have to keep paying your fixed costs in the short run. Fill in the table completely. Remember to STATE both what level of production you would choose and what DOLLAR PROFIT you would make. # of workers TR AR Q TC $ Profit or Loss (TP) VOUT A W N Y Question 7 (1 mark) If marketing data showed you could sell the following number of chairs at the prices indicated, how many chairs would you produce and what would be your profit? Fill in the table completely. Remember to STATE both what level of production you would choose and what DOLLAR PROFIT you would make. # of chairs 11,000 24,000 31,000 46,000 54,000 63,000 59,000 Price (AR) $200 $150 $125 $100 $75 $50 $45 # of workers PXQ price FC+VC $ Profit or Loss TR AR Q TC TP O 1 2 3 4 5 6 On Accessibility: Good to go Q Search OLGes chairs Microeconomics questions v 9 Search es Mailings Review View Help Normal No Spacing Heading 1 Heading 2 Title SPC R Paragraph Styles Question 8 (1 mark) Given your answer in Question 7, and assuming this company is the only supplier, is this market in equilibrium? Explain why or why not. Question 9 (1 mark) Why does quantity decrease when the 7th worker is added? What is the term for this effect? Question 10. (6 marks) a. What is consumer surplus and producer surplus. Assume that the market is not in equilibrium. Create one graph that illustrates consumer surplus and producer surplus. You need to create your own graph, not just use an image from the internet. Be sure to label your axis and clearly point out the areas that illustrate both consumer surplus and producer surplus. You don't need to make up numbers to answer this question. (3 marks) b. What are deadweight losses? Create one graph, to illustrate this concept. You need to create your own graph, not just use an image from the internet. Be sure to label your axis and clearly point out the areas that illustrate both types of deadweight losses. You don't need to make up numbers to answer this question. (3 marks) Accessibility: Good to go Q Search