FIN 605 Week 2 Assignment Help

FIN 605 Week 2 Assignment Help  | Homework Help 2 |  Kogod School Of Business American University 

Homework 2 – Chapter 7

Exercises 1, 3, 4, 5, 8, 9, & 10  

1.      Joe quits his computer programming job, where he wasearning a salary of $50,000 per year,          to start his owncomputer software business in a building that he ownsand was previously renting out for $24,000 per year. Inhis first year of business he has the following expenses:salary paid to himself, $40,000; rent, $0; other expenses,$25,000. Find the accounting cost and the economiccost associated with Joe’s computer software business.

3.      A firm has a fixed production costs of $5,000 and a constant marginal cost  production of $500 per unit produced.

a.      What is the firm’s total cost function? Average cost?

b.      What is the firm’s total cost function? Average cost?

4.  Suppose a firm must pay an annual tax, which is a fixed sum, independent of whether it produces any output.

a.      How does this tax affect the firm’s fixed, marginal, and average costs?

b.      Now suppose the firm is charged a tax that is proportional to the number of items it produces. Again, how does this tax affect the firm’s fixed, marginal, and average costs?

5. During the recent auto sales slump, GM, Ford, and Chrysler decided it was cheaper to sell cars to rental companies at a loss than to lay offworkers.That’sbecauseclosingandreopeningplantsisexpensive,partlybecausetheautomakers’currentunioncontractsobligatethem to pay many workers even if they’re not working.When the article discusses selling cars “at a loss,” is it referring to accounting profit or economic profit? How will the two differ in this case? Explain briefly.

  8.       You manage a plant that mass produces engines by teams of workers using assembly machines. The technology is summarized by the production function.

a.                   What is the cost function for your plant — namely, how much would it cost to produce q engines? What are average and marginal costs for producing q engines? How do average costs vary with output?

b.      How many teams are required to produce 250 engines? What is the average cost per engine?

c.       You are asked to make recommendations for the design of a new production facility. What capital/labor (K/L) ratio should the new plant accommodate if it wants to minimize the total cost of producing any level of output q?

9.       The short-run cost function of a company is given by the equation TC=200+55q, where TC is      the total cost and q is the total quantity of output, both measured in thousands.

a.      What is the company’s fixed cost?

b.      If the company produced 100,000 units of goods, what would be its average variable cost?

c.       What would be its marginal cost of production?

d.      What would be its average fixed cost?

e.       Suppose the company borrows money and expands its factory. Its fixed cost rises by $50,000, but its variable cost falls to $45,000 per 1,000 units. The cost of interest (i) also enters into the equation. Each 1-point increase in the interest rate raises costs by $3,000. Write the new cost equation.

10.  A chair manufacturer hires its assembly-line labor for $30 an hour and calculates that the rental cost of its machinery is $15 per hour. Suppose that a chair can be produced using 4 hours of labor or machinery in any combination. If the firm is currently using 3 hours of labor for each hour of machine time, is it minimizing its costs of production? If so, why? If not, how can it improve the situation? Graphically illustrate the isoquant and the two isocost lines, for the current combination of labor and capital and for the optimal combination of labor and capital.