Assignment 7.1 - Firm Costs

Our firm produces two products: generators and solar panels.

Name five economies of scale you would expect our company to leverage and explain how you would expect the company to leverage them. (20 points)

Our firm's accountants have put together the following table of costs.

Generators Solar Panels

Fixed Costs $2 million $2 million

Variable Costs $2 million $2 million

Revenue $3 million $5 million

The accountants have assured us that there are no places to save money. We are at our profit maximizing quantities of each product. We are as efficient as any firm could possibly be. In answering the questions below, do not just say lower costs or increase sales. Explain all your answers. If you cannot explain why you are taking an action, then you are just guessing.

How is this firm doing as a whole? How profitable are the two products individually? (15 points)

What would you recommend this firm do in the short run? (15 points)

What about the long run? (15 points)

This is a graph of our firm's costs. Label the lines on the graph using the following labels: average fixed cost (AFC), average variable cost (AVC), average total cost (ATC) and marginal cost (MC). Then label the shut down and breakeven points on the graph.(15 points)

The accountants claim that we are at our profit maximizing point. You decide to investigate potential diseconomies of scale. What diseconomies of scale do you think you might find? How could these be addressed and hopefully decrease costs? (20 points)