Humber College Compute the Price per Picture Frame Economics Questions I have attached the word file. It has question. Please check the attachment. Assignm

Humber College Compute the Price per Picture Frame Economics Questions I have attached the word file. It has question. Please check the attachment. Assignment should be done in word format. Assignment 2
Learning Outcomes
The learner will be able to:
Given a specific business situation, calculate the point of profit maximization in the short
term.
Show how the profit maximizing firm responds in the long run as the costs of one or
more of the inputs changes.
Instructions
1. Complete the exercises below, answering all questions. In this exercise you are
trying to maximize profits (or minimize losses). Don’t forget to answer the
questions as well as create the table.
2. Submit the assignment in a WORD document using the Assignment Submission
feature. Assignments not submitted as a Word document will not be accepted.
Assignments submitted in Excel or PDF format will be returned unmarked.
Assignments that are emailed will not be accepted.
A company produces gold picture frames. The cost per picture frame is:
Materials
Packaging
Decorations on the frame
Shipping and handling
$9
$1
$5
$1.5
Each worker earns $30,000 annually in salary and benefits. The number of workers
changes based on the level of production. This means this is a variable cost.
The artist who creates the designs on the picture frames is paid $25,000 annually.
Senior management are paid a total of $200,000 annually. Other annual costs are:
Taxes and Insurance
Utilities
Rent
Miscellaneous Overhead Expenses
The following production is possible:
No. Of
0
1
2
3
Workers
No. Of
0
12,000 21,000 35,000
Picture
Frames
that can be
made
$17,000
$50,000
$300,000
$24,000
4
5
6
7
50,000
65,000
73,000
71,000
Assignment 2
1. Using all this information complete the following table and answer the questions.
It would be easier if you set this up in an Excel spreadsheet. When you are done,
you must submit it as a Word document with your answers. You will use this table
to answer questions 2 and 3. (4 marks)
Your first step is to identify which are fixed costs and which are variable costs. If
you will have to keep paying the cost whether you produce 0 units of the product
or 10,000 units, then it is a fixed cost. In the short run you have to keep paying it.
In the long run you may be able to change these fixed costs. A variable cost
changes based on how much of the product you produce. But the variable costs
may not change all at the same time.
# of
workers
Q
TVC
AVC
AFC
TVC / Q FC / Q
0
0
1
12000
2
21000
3
35000
4
50000
5
65000
6
73000
7
71000
TC
ATC
MC
FC +
VC
TC/Q
?TC /
?Q
Assignment 2
2. What is the lowest price you would be willing to start producing this new product?
Be precise. Don’t round up to the nearest dollar. (1 mark)
3. If you were already committed to the fixed costs, how low could the price per
picture frame fall before you would consider shutting down production?
Remember, in the SHORT RUN, you have to keep paying your fixed costs
whether you produce any picture frames or not. If you can cover your variable
costs, then anything over that will reduce your fixed costs. You may be losing
money in the short run but you are losing less money. (1 mark)
For Questions 4 to 7, you need to fill in the table for each question. You need to
STATE how many workers, the level of production and the profit you will make.
Your costs, quantities and # of workers will be the same as you calculated in
Question 1.
4. If the price per picture frame was fixed at $35, what would you do? Remember, in
the short run you can’t alter fixed costs, you can just decide where to set the level
of production. You need to calculate total revenue and profit or loss for each level
as you are given the average revenue. Remember to state both what level of
production you would choose and what dollar profit you would make. (1
mark)
# of
Workers
PxQ
TR
0
1
2
3
4
5
6
7
price
AR
Q
FC + VC
Profit or
Loss
TC
TP
Assignment 2
5. If the price per picture frame was fixed at $26.50, what would you do in the
SHORT RUN? Again, remember that you have to keep paying your fixed costs in
the short run. Fill in the table completely and state what level of production you
would use. State what is your profit at this level? (1 mark)
PxQ
# of
Workers
TR
price
AR
Q
FC + VC
Profit or
Loss
TC
TP
0
1
2
3
4
5
6
7
6. If the price per picture frame were fixed at $18.60, what would you do in the
SHORT RUN? Fill in the chart and state what level of production you would use.
(1 mark)
# of
Workers
PxQ
TR
0
1
2
3
4
5
6
7
price
AR
Q
FC + VC
Profit or
Loss
TC
TP
Assignment 2
7. If marketing data showed you could sell the following number of picture frame at
the prices indicated, how many picture frames would you produce and what
would be your profit? Fill in the chart. (1 mark)
# of
Picture
Frames
Price
(AR)
12000 21000 35000 50000 65000 73000 71000
$40
# of
Workers
0
1
2
3
4
5
6
7
$38
TR
$36
$33
$30
AR
Q
TC
$28
$26
Profit or
Loss (TP)

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