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### Customer Question

You are the owner of a small bread factory and are thinking of lowering costs and expanding. Your small-business advisors suggested that you first review your operations and make some technological changes. Complete the following:

• Explain what a technological change is and how you can use it to lower your costs.

• Assume that you thought of something innovative to change your process. Would it help you in the short run? How?

• Develop a table that you believe shows the explicit fixed costs of the bread factory and the total amount of the costs.

• Because you are not an expert yet on analyzing costs and optimal production levels, you decide to do a very simple analysis of your short-run fixed and variable costs if you expand. You decide that your only fixed cost will be the ovens and the variable costs will be the workers.

 Quantity of Workers Quantity of Ovens Quantity of Loaves of Bread Produced Cost of Ovens Cost of Workers Per Week 0 2 0 500 0 1 2 50 450 2 2 125 3 2 210 4 2 300 5 2 410 6 2 550 7 2 625 8 2 660 9 2 700 10 2 730

Instructions

1. Graph the total cost and the average total cost.

2. Calculate the marginal product of labor, and add it to the table.

3. Calculate the average product of labor, and add it to the table.

4. What is the significance if one is greater than the other?

5. Although there seems to be a great demand for your bread, why would productivity decline when you hire more labor in the short run? How would that reflect on your production graph?

6. What are your marginal costs?

7. At what point do your marginal costs and your total costs intersect?

8. What happens to the total costs after this point?

10. Is your marginal cost greater than or less than your average variable cost or your average total cost? What does that mean? Where do you want your marginal costs to be?

11. What happens to your average variable costs as your output goes up? Why is that?

12. Explain why in the bread-making business that, in the long run, all costs are variable and the average total costs equals the average variable costs. How would expanding the business affect the economies of scale? When would you have constant return to scale and diseconomies of scale? Provide examples.

13. Where is the optimal level of production and the optimal level of prices in the short run? Is there enough information to make a decision for the long run? What information do you need?

Key Assignment Draft

You are starting your own Internet business. You decide to form a company that will sell cookbooks online. Justcookbooks.com is scheduled to launch 6 months from today. You estimate that the annual cost of this business will be as follows:

 Technology (Web design and maintenance) \$5,000 Postage and handling \$1,000 Miscellaneous \$3,000 Inventory of cookbooks \$2,000 Equipment \$4,000 Overhead \$1,000

Part I

Deliverable Length: 1 graph plus calculations

You must give up your full-time job, which paid \$50,000 per year, and you worked part-time for half of the year.

The average retail price of the cookbooks will be \$30, and their average cost will be \$20.

Assume that the equation for demand is Q = 10,000 – 9,000P, where

Q = the number of cookbooks sold per month

P = the retail price of books.

Show what the demand curve would look like if you sold the books between \$25 and \$35.

Part II

Deliverable Length: 1,000–1,500 words

1. What is the elasticity of the demand for cookbooks bought this way?

2. Is the business worth pursuing so far?

3. Why or why not?

4. Suppose that you expect to sell about 22,000 cookbooks per month online, and assume your overhead, technology, and equipment costs are fixed. What are your total costs?

5. What are your marginal costs?

6. What are the implications of operating in the short run and the long run?

7. As your business grows, how must you consider the issues regarding diminishing marginal returns and economies of scale?

8. What market structure have you entered, and why?

9. What can you do to guarantee success in this market?

10. Can you use price discrimination in this business?

11. What pricing strategy might you use?

Key Assignment Final Draft

You are starting your own Internet business. You decide to form a company that will sell cookbooks online. Justcookbooks.com is scheduled to launch 6 months from today. You estimate that the annual cost of this business will be as follows:

 Technology (Web design and maintenance) \$5,000 Postage and handling \$1,000 Miscellaneous \$3,000 Inventory of cook books \$2,000 Equipment \$4,000 Overhead \$1,000

Part I

Deliverable Length: 1 paragraph plus calculations

You must give up your full-time job, which paid \$50,000 per year, and you worked part-time for half of the year.

The average retail price of the cookbook will be \$30, and the average cost will be \$20.

Assume that the equation for demand is Q = 10,000 – 9,000P, where

Q = the number of cookbooks sold per month

P = the retail price of books.

Show what the demand curve would look like if you sold the books between \$25 and \$35.

Part II

Deliverable Length: 1,000–1,500 words

1. What is the elasticity of the demand for cookbooks bought this way?

2. Is the business worth pursuing so far?

3. Why or why not?

4. Suppose that you expect to sell about 22,000 cookbooks per month online, and assume that your overhead, technology, and equipment costs are fixed. What are your total costs?

5. What are your marginal costs?

6. What are the implications of operating in the short run and the long run?

7. As your business grows, how must you consider the issues regarding diminishing marginal returns and economies of scale?

8. What market structure have you entered, and why?

9. What can you do to guarantee success in this market?

10. Can you use price discrimination in this business?

11. What pricing strategy are you thinking about?

Part III

Deliverable Length: 600–800 words

The government decides to tax cookbooks because they feel that they encourage overeating and can lead to health issues, such as obesity and heart disease. Answer the following:

• What type of tax is this? Explain.

• What happens to the supply of cookbooks?

• What happens to the equilibrium price?

• Who pays the tax at the end?

• Is this a good way to finance programs to improve health?

• What other types of tax can the government use to increase revenues?

Part IV

Deliverable Length: 600–850 words

Justcookbooks.com becomes wildly successful in the United States, and you decide to export overseas. Answer the following:

• Does this reflect an absolute or a comparative advantage?

• Name 4 issues that you will encounter as you become a multinational corporation.

Part V

Deliverable Length: 600–850 words

In the article entitled "The Economic Effects of Labor Unions Revisited," Vedder and Galloway attempt to prove statistically, using historical data, that labor unions do not have a good effect on the economy. Read the article, and explain the following microeconomic concepts that the authors discuss and how they are related to unions:

• Demand, supply, and equilibrium wage rates of labor

• Unemployment

• Elasticity

• Real GDP and economic growth

• Income per capita

• Population growth and aging

• Marginal costs, marginal revenues, and profits

The article focuses on harmful economic effects, but also mentions some positive aspects. What are they? Does moral hazard apply to unions? Why or why not?

Submitted: 2 years ago.
Category: Essays
Expert:  Angela--Mod replied 2 years ago.

Hi, I’m a Moderator for this topic and I wonder whether you’re still waiting for an answer. If you are, please let me know and I will do my best to find a Professional to assist you right away. If not, feel free to let me know and I will cancel this question for you. Thank you!

Customer: replied 2 years ago.
Yes
Expert:  Angela--Mod replied 2 years ago.
Sometimes, finding the right Professional can take a little longer than expected and we thank you greatly for your understanding. We’ll be in touch again shortly.
Expert:  Angela--Mod replied 2 years ago.
Thank you for your patience, your business is very important to us, we are waiting on the Professional with the right expertise to come online. Feel free to let us know if you would like us to continue searching for a Professional or if you would like us to close your question. Thank you for your understanding!
Customer: replied 2 years ago.
No

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