Average Cost Curves Case Study Example | Topics and Well Written Essays - 1000 words

Average Cost Curves - Case Study Example These critical business decisions will be made with the help of Average Cost Curves. These graphs will convey information about optimum production levels and the most beneficial expansion scheme. Total Average Cost is the average fixed cost plus the average variable cost. The Short Run Average Cost (SRAC) is the average cost of the product when at least one input variable remains fixed. This is usually the building or the plant used in manufacturing. The Long Run Average Cost (LRAC) is the average cost over a longer time period when all input variables have changed. It takes into account new plants, buildings, and large capital investments. Though these curves will vary depending on the individual product and situation, for a successful business they will almost always assume the same general shape. The shape of the SRAC curve and the LRAC curve are influenced by the changing input variables plotted against differing production levels. As Acme begins production, the cost of the first few units is heavily influenced by the fixed costs such as the lease on the building. The graph will start at a high average cost per unit. As they increase production levels, the fixed costs become spread out over more units and the SRAC begins to fall. At this point, the graph will begin to slope downward as the quantity rises. The SRAC will continue to decrease as production increases toward full capacity, as both fixed and variable (due to material volume) cost per unit declines. This period of declining SRAC is known as the economy of scale. When the factory has reached full capacity, its resources are being optimised and the total average cost per unit has reached a minimum. Manufacturing beyond this point will begin to increase the average cost as variable costs rise, and the process will enter a period of diseconomy of scale. Added expenses such as temporary labour, overtime, and additional management are a few of the factors that can contribute to the rising variable cost. Here, the graph turns upward reflecting the higher average cost. As more units are produced, the average cost continues to rise dramatically reflecting the inefficiencies involved with over capacity production. This is known as the law of diminishing returns. A key component and indicator on the graph of the SRAC is the Marginal Cost (MC). This is the total cost of producing the next unit. With an efficient factory running near capacity, this will be at a minimum, and less than the average. However, going beyond this point will cause the marginal cost to spike upward on a steeper slope than the average. When the marginal cost line crosses the average, production is at its most efficient. As marginal costs rise, it pulls the SRAC curve up with it, though at a less responsive rate. Acme could remain profitable in this area of increasing costs and diminishing returns as long as MC is below the selling price. However, to maximise resources it is desirable to keep the SRAC at a minimum. The point at which the marginal cost begins to rise and cross the SRAC is the point at which Acme must consider expanding their production capabilities. Acme has already planned for this expansion. They are no where near market saturation and the product design has a long life ahead of it. Their sales are increasing and they have studied various plans on the

Response Assignment Example | Topics and Well Written Essays - 250 words - 12

Response - Assignment Example She goes ahead to introduce her role she plays in the family and reasons as to why she is the bread winner. Her description of their home district and the Capitol is organized in a chronological manner that it creates real images in the readers’ minds. The theme of suffering for pleasure or entertainment is an interesting one since this was the main method used by the government of Panem to show power and might among its citizens. However I also find that though the capitol people were enjoying the hunger games, the people from the other districts were slowly developing defiance and thus the theme of defiance to dictatorship. This is true when the writer describes how she feels about the government in the capitol. An example of this defiance is when the author says, â€Å"Eventually I understood this would only lead us to more trouble. So I learned to hold my tongue and to turn my features into an indifferent mask so that no one could ever read my thoughts†. (Page 6, Chapter 1). The â€Å"thoughts† that Katniss is talking about are those of wanting to defy the government just as she does when she humiliates the government by showing mercy to Rue when she dies which is against the rules of the game, as well as decorat ing her body. This is some form of silent rebellion which the government is unaware of. While the crowd is enjoying the killings, katniss uses the opportunity to show them that there is more than the deaths: she is ready to defy their rules for her