Hi there,
I am having trouble with this problem.Can you give me some guidance.
In planning the publication of a new engineering economics textbook, the publisher has identified the following fixed and variable costs.
Fixed Costs
Overhead- $10,000
Editing and Typesetting- $100,000
Author's Fee- $10,000
Variable Costs
Printing/binding- $25/copy on first
5000 copies
$20/copy on copies
above 5000
Author's royalty- $2/copy
Warehousing/distribution-$1/Copy
If the publisher prints 4000 copies, determine the average and marginal cost per copy. What are these costs if the publisher prints 7500 copies.
Thank you.
In your problem:
total fixed costs (TFC) are 120,000
total variable costs (TVC) are 4000*(25+2+1) = 112,000
Total costs are 120,000+112,000=232,000
Average costs are 232,000/4000 = 58.
Marginal costs are the cost of producing one more book = 25+2+1 = 28.
Ok, now repeat for the 7500 production case. Take it from here.
To determine the average and marginal cost per copy, we first need to calculate the total cost for each quantity of copies printed.
For 4000 copies:
Fixed Costs:
Overhead: $10,000
Editing and Typesetting: $100,000
Author's fee: $10,000
Variable Costs:
Printing/binding: $25/copy for the first 5000 copies = $25 x 4000 = $100,000
Author's royalty: $2/copy = $2 x 4000 = $8,000
Warehousing/distribution: $1/copy = $1 x 4000 = $4,000
Total Cost: Fixed Costs + Variable Costs = $10,000 + $100,000 + $10,000 + $100,000 + $8,000 + $4,000 = $232,000
Average Cost per Copy = Total Cost / Number of Copies = $232,000 / 4000 = $58
Marginal Cost per Copy refers to the change in total cost due to producing one additional copy. In this case, since the quantity is given as 4000 copies, there is no change in the quantity, so the marginal cost is not applicable in this scenario.
Now, let's calculate the costs if 7500 copies are printed:
Fixed Costs remain the same:
Overhead: $10,000
Editing and Typesetting: $100,000
Author's fee: $10,000
Variable Costs:
Printing/binding: $25/copy for the first 5000 copies + $20/copy for the remaining 2500 copies =
$25 x 5000 + $20 x 2500 = $125,000 + $50,000 = $175,000
Author's royalty: $2/copy = $2 x 7500 = $15,000
Warehousing/distribution: $1/copy = $1 x 7500 = $7,500
Total Cost: Fixed Costs + Variable Costs = $10,000 + $100,000 + $10,000 + $175,000 + $15,000 + $7,500 = $317,500
Average Cost per Copy = Total Cost / Number of Copies = $317,500 / 7500 = $42.33
Again, the Marginal Cost per Copy is not applicable since the quantity is given as 7500 copies, and we are not considering the change in quantity.
So, to summarize:
For 4000 copies:
- Average Cost per Copy = $58
- Marginal Cost per Copy = Not applicable
For 7500 copies:
- Average Cost per Copy = $42.33
- Marginal Cost per Copy = Not applicable