Make components according to the cost function

Assignment Help Business Economics

Reference no: EM13891929

An outside firm can make components according to the cost function TC=1m + 10Q. Suppose it typically produces 10m units.

(a) What is this firm’s cost per unit? Suppose that your firm is able to buy components at this cost per unit. If you order 1m units from this outside firm, what is your total cost of components?

(b) Suppose you can produce the component yourself with the same total cost function; TC=1m + 10Q. How much do the 1m components cost?

(c) If the transaction cost of dealing with an independent firm is .8m and the internal cost of managing your own component division is .2m, is it more profitable to outsource?

Reference no: EM13891929

Questions Cloud

What price might the parties agree upon for the software : A medical expenses billing firm wishes to hire a software firm to design its software to more efficiently handle its billing. Having the programming redesign is worth $1.5 million to the billing firm. The software firm can write and install new progr..

Design to develop the can logo and design : RC Cola is considering marketing a new, fruit flavored soft drink. It hires Mark-D Design to develop the can logo and design. RC calculates that a good design raises can sales and is worth $.75 million to them. Ex-ante, what is Mark-D’s expected prof..

Outsource production of inputs that are large firms : In many modern U.S. industries, the following patterns seem to hold: Small firms are more likely to outsource production of inputs that are large firms; “Standard” inputs are more likely to be outsourced than “tailor-made” inputs.

Economies of scale more important : Answer the same questions as in the previous problem if TC = .5m + 10Q. In which problem are economies of scale more important? Explain how this affects your outsourcing decision.

Make components according to the cost function : An outside firm can make components according to the cost function TC=1m + 10Q. Suppose it typically produces 10m units. What is this firm’s cost per unit? Suppose that your firm is able to buy components at this cost per unit. If you order 1m units ..

Is vertical integration into pig farming needed to maintain : Large producers of ham and pork food products require a steady supply of pigs over a long period of time to operate efficiently. Is vertical integration into pig farming needed to maintain that steady supply?

Long-run total cost function for firm producing skateboard : The long-run total cost function for a firm producing skateboards is. Calculate the marginal cost function. What is marginal cost at the output level in part b?

Long-run and short-run aggregate supply curve : The classical economists believed that our economy was always at full employment or tending toward full employment. If our economy were operating below full employment, what would happen, according to the classical, to move the economy back toward fu..

Calculate the short-run average cost function : A firm has a production function given by q=2 sqrt(KL) In the short run, the firm’s amount of capital equipment is fixed at K=100. The rental rate for K is v=$1, and the wage rate for L is w=$4. Find the firm’s short-run total cost function (STC). Ca..

User Account

All Pages