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B. Quantitative Analysis

1. Problem: "Learning Curves" (9 points)

Fashionable Designs, Ltd., plans to market a new sports blazer. Based on information provided

by the accounting department, the company estimates fixed costs of $40,000 per year and

average variable costs of:

AVC = $1 + $0.001Q,

where AVC is average variable cost (in dollars) and Q is output.

a). Graph the firm's total cost curve and fixed cost curve.

b). Estimate total cost and average total cost for the projected first-year volume of 10,000 units.

c). An increase in worker productivity because of greater experience or learning during the course of the year resulted in a substantial cost saving for the company.Estimate the effect of learning on average total cost if actual second-year total cost was $250,000 at an actual volume of 15,000 units.