Redstone Clayworks, Inc. is located in Sedona, Arizona and manufactures clay fire pits for patios. They are one of about two dozen firms around the world that manufacture and sell clay fire pits for retailers such as Home Depot, Lowe’s, Front Gate, and other upscale home product chains. There is virtually no product differentiation; a clay fire pit is a clay fire pit.

The spreadsheet below gives some of Redstone’s production cost data. Enter this data in your own Excel spreadsheet. (Remember our discussion of Smith Farms in the Attend session!) Add columns 5, 6, 7, and 8 to show, respectively, average fixed cost (AFC), average variable cost (AVC), average total cost (ATC), and short-run marginal cost (SMC). You will send me the spreadsheet via the Drop Box. Don’t send it yet, however, because you will need to add more columns, as explained below.

(1) (2) (3) (4)
Q TC TFC TVC
0 5000 5000 0
100 10000 5000 5000
200 19000 5000 14000
300 27000 5000 22000
400 38000 5000 33000
500 50000 5000 45000
600 66000 5000 61000
700 84000 5000 79000
800 104000 5000 99000
900 126000 5000 121000
1000 150000 5000 145000

The world market demand and supply curves for clay fire pots intersects at $190 per unit. Add columns 9, and 10 to show, respectively, total revenue (TR) and marginal revenue (MR). Add column 11 to show profit (i.e., TR-TC). Add column 12 to show profit per unit (i.e., average profit). Add column 13 to show profit margin (i.e., price minus average total cost).
Submit your Excel spreadsheet to the Drop Box. [Hint: At Q = 400: AVC = 82.50, SMC = 110, MR = 190, profit = 38,000, and profit margin = 95].




type here 1. If Redstone wanted to minimize average total cost, it would produce how many units?

To find the quantity at which Redstone would minimize average total cost, we need to calculate the average total cost (ATC) for each quantity and identify the minimum value.

To calculate ATC, we need to divide the total cost (TC) by the quantity (Q). Add a column for ATC (column 7) in your spreadsheet and divide TC by Q for each row.

Thus, the formula for ATC would be:
=TC/Q

After calculating ATC for each quantity, identify the minimum value. The corresponding quantity would be the number of units Redstone should produce to minimize average total cost.

To find the quantity of units that would minimize average total cost (ATC), we need to analyze the data provided in the table.

First, let's calculate the ATC. ATC is calculated by dividing total cost (TC) by the quantity of units produced (Q).

Given the data in columns 1, 2, and 4, we can calculate ATC by adding column 2 divided by column 1.

Q | TC | TFC | TVC
------------------------------
0 | 5000 | 5000 | 0
100 | 10000 | 5000 | 5000
200 | 19000 | 5000 | 14000
...

Next, we divide the total cost (TC) by the quantity (Q) to find ATC for each row. Note that AFC (average fixed costs) remain constant as production increases.

Now, let's add column 5 to the table and calculate AFC by dividing TFC (total fixed cost) by Q (quantity):

Q | TC | TFC | TVC | AFC
-------------------------------------
0 | 5000 | 5000 | 0 | 5000/0 (undefined)
100 | 10000 | 5000 | 5000 | 5000/100 = 50
200 | 19000 | 5000 | 14000 | 5000/200 = 25
...

To find ATC, we add AFC (column 5) to AVC (average variable cost). AVC is calculated by dividing TVC (total variable cost) by Q.

Now, let's add column 6 to the table and calculate AVC:

Q | TC | TFC | TVC | AFC | AVC
----------------------------------------
0 | 5000 | 5000 | 0 | N/A | N/A
100 | 10000 | 5000 | 5000 | 50 | 5000/100 = 50
200 | 19000 | 5000 | 14000 | 25 | 14000/200 = 70
...

Now, let's find the quantity at which ATC is minimized. In general, ATC is minimized at the point where it intersects with AVC, so we need to find where ATC and AVC intersect.

Based on the provided data, when Q = 400, AVC = 82.50 and SMC (short-run marginal cost) = 110.

Since ATC is the sum of AFC and AVC, we can approximate ATC when Q = 400 by adding AFC and AVC:

ATC = AFC + AVC = 25 + 82.50 = 107.50

To minimize ATC, we look for the lowest value of ATC in the table. Based on the information provided, the lowest value of ATC is 107.50, and this occurs when Q = 400 units.

Therefore, Redstone should produce 400 units to minimize average total cost (ATC).