1. A friend of yours inherits her grandparents' printing company. The capital stock of the company consists of three machines of various vintages, all in excellent condition. All machines can be running at the same time
Service contract Cost of Printing and Blinding per Book Maximum Total Capacity per M
Fee per month
Machine1 $25 $1.00 100
Machine2 $30 $2.00 200
Machine3 $45 $3.00 500
2. Assume that the "cost of printing and binding" includes all labor and materials. Assume further that Grandma and Grandpa signed a long-term contract for service on each machine payable for a fixed fee payable each month regardless if the machines are used or not. You are able to produce to meet demand each month.
- What are fixed costs in this example?
- Which machine(s) will you use if demand is 250 books per month? Calculate total cost and average total cost at demand of 250 per month.
- Calculate total cost and average total costs if demand is 450 per month.
- What happens to average total costs (ATC) when your production goes up from 250 to 450?
- If you wanted to make a profit of 1 per book at 250 books, how much would you have to charge?
If you wanted to make a profit of $1 per book at 450 books, how much would you have to charge?