Case:

At a desperate time for the dairy industry, with droves of farmers making the tough decision to quit, a determined Sunshine Coast couple is staking their financial future on upgrading their processing plant and keeping local farms in business. In the past five years Ross and Sally Hopper have spent about $10 million upgrading Maleny Dairies' factory. It was founded in 2000 by Mr Hopper's late parents Harold and Dorothy dairy farmers who foresaw the difficulties ahead after deregulation. At the turn of the century there were 1,500 dairy farms in Queensland; now there are about 300. The Hoppers' most recent $2.5 million investment included installing two crate-stacking robots to cut down on spiralling casual overtime costs and speed up deliveries to their distribution centres at Caboolture and the Gold Coast, and to IGA's major depot in Brisbane. "We're looking forward to the future, we can see a future in our domestic milk and yeah automation is obviously a way of moving forward," Mr Hopper said.

Task:

Describe what you think some of the key costs would be for Maleny Dairies, and detail which are fixed costs and which are variable costs. How do you think their current investments would impact their cost structure? Depict these changes on a diagram (or diagrams) showing their ATC, AVC and MC under their old cost structure and under their new cost structure and explain how this shows the changes that you have proposed.

Criteria:

Appropriate costs are suggested.A clear understanding of fixed and variable cost is shown and correctly applied.An appropriate case is made for the investments impact on cost structure.Diagrams used are drawn correctly including aspects such as how the curves must be related to one another.Changed cost structure is correctly depicted on diagram/s.How the diagrams are related to the proposed change in cost structure is clearly explained