You have collected the following data on output and total variable costs: Q TVC ($) 10 6,780
Question:
You have collected the following data on output and total variable costs:
Q | TVC ($) |
10 | 6,780 |
20 | 11,840 |
30 | 16,260 |
40 | 21,120 |
50 | 27,500 |
60 | 36,480 |
70 | 49,140 |
80 | 66,560 |
90 | 89,820 |
100 | 120,000 |
Current fixed costs for the company equal $9,300. Draw two graphs, both with Q on the horizontal axis: one graph shows TVC and TC, and the other shows AVC, ATC, and MC.
a. If the government imposes a $3,600 property tax hike on all businesses; how will that affect your two graphs; i.e., which cost curves will be affected and how?
b. If the government considers your production process to be polluting, and imposes a $94 tax per unit produced (replacing the property tax in the previous question). How does this tax increase compare to the property tax increase, in terms of the effect on your company’s cost curves?
c. If your boss says “either of these taxes is going to force us to change our production levels.” Given what you know about optimization analysis, how would you respond?
Operations Management Managing Global Supply Chains
ISBN: 978-1506302935
1st edition
Authors: Ray R. Venkataraman, Jeffrey K. Pinto