An American company that sells consumer electronics

QUESTION

1. An American company that sells consumer electronics products has manufacturing facilities in Mexico, Taiwan, and Canada. The average hourly wage, output per person (used as a proxy for marginal product in this problem), and overhead cost for each site are as follows:ItemMEXICOTAIWANCANADAHourly Wage Rate$ 1.50$3.00$6.00Output per Person101820Fixed Overhead Cost$150,000$90,000$110,000A. Given these figures, is the firm currently allocating its production resources optimhially? If not, what should it do and why? Show all your calculations.B. Suppose the firm wants to consolidate all its manufacturing into one facility. Where should it locate? Explain.2. Answer each of the following as true or false and explain your answers briefly. No credit will be given for just a true/false answer if no explanation is provided.A. If a firm has constant returns to scale in the long run, the total cost of producing its product does not change when it expands or contracts its output.B. Minimum efficient scale occurs at the largest level of output at which a firm can minimize its long-run average costs.C. If a firm increases all its inputs by 20% and its output increases by 30%, the firm is experiencing economies of scale.D. One explanation why the long-run average cost curve of a firm rises after some level of output has been reached is the law of diminishing returns.E. The production functions Q = 2L0.35K0.70and Q = 20L + 16K + 10LK both exhibit increasing returns to scale.3. Allenton Fasteners, Inc. is currently producing and selling 40,000 units of output, which also happens to be its plant’s capacity. Since potential orders are being turned down, the company is considering expanding capacity to 50,000 units. Currently, variable cost is $2 per unit and fixed costs are $80,000. Management estimates that after expansion their fixed costs will increase fixed costs to $120,000, but variable costs will fall to $1.20 per unit due to more technologically advanced equipment being purchased. At present, their fasteners sell for $6 per unit, and management expects to maintain that price if capacity is expanded to remain competitive.A. What is the firm’s current breakeven level? Show all calculations and explain what your answer means.B. What is the firm’s current degree of operating leverage at 40,000 units of output? Show all calculations and explain what your answer means.C. How would an increase in fixed costs alone (i.e., with no change in variable costs or output) impact the degree of operating leverage (would it increase, decrease or remain the same)? Explain.D. How would a decrease in variable costs alone (i.e., with no change in fixed costs or output) impact DOL? Explain.4. An engineering consulting firm has the following total & marginal product functions:Q = 20E – E2+ 12T – 0.5T2(total product function)MPE= 20 – 2E and MPT= 12 – T(marginal productivity of E or T)where: E = the number of engineers used and T = the number of technicians used on projects,The wage paid to engineers is $4000, while technicians, who are not as skilled as engineers, receive $2000. The firm’s budget on a particular project is $28,000. How many engineers and how many technicians should be hired in order to maximize production relative to their budget?Hint: Set up an equation that allocates engineers and technicians optimally first and solve in terms of one variable (E or T). Once you get that, then take the budget into account (by setting up a cost equation) so you can get the correct numberof workers to use by doing substitution.5. A firm has the following cost functions:TC = 1200 + 2Q – 0.2Q2+ 0.01Q3and MC = 2 – 0.4Q + 0.03Q2A. Determine equations for the following:1) total variable costs2) average fixed costs3) average variable costs4) average total costsB. Use these equations above to fill in the table below:QTFCTVCTCAFCAVCATCMC2075100Show all your work or provide an attachment in Excel that shows your formulas.

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