Answered: 2. Oswego Machine Company (OMC)…

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter9: Applications Of Cost Theory

Section: Chapter Questions

Problem 3E

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Question

2. Oswego Machine Company (OMC) produces 9,000 multipurpose pliers that sell for $9.50 each.

Its present cost function is estimated to be:

TC = 25,000 + 3.7Q

However, OMC is considering renovating its facilities.

The new, technologically advanced plant would have an estimated cost function of:

TC = 34,000 + 2.5Q

The marketing department claims that the demand for the pliers fits a normal distribution with an expected mean value of 14,000 units per year.

What are the current TC, TFC, TVC, ATC, and MC?
What is the break-even point for both plant designs?
Would you be in favor of renovating the plant?

Features Features Normal distribution is characterized by two parameters, mean (µ) and standard deviation (σ). When graphed, the mean represents the center of the bell curve and the graph is perfectly symmetric about the center. The mean, median, and mode are all equal for a normal distribution. The standard deviation measures the data's spread from the center. The higher the standard deviation, the more the data is spread out and the flatter the bell curve looks. Variance is another commonly used measure of the spread of the distribution and is equal to the square of the standard deviation.

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