Managerial Economics 13th Edition by James McGuigan,Charles Moyer,Frederick Harris

Exercise 8

A manufacturing plant has a potential production capacity of 1,000 units per month (capacity can be increased by 10 percent if subcontractors are employed). The plant is normally operated at about 80 percent of capacity. Operating the plant above this level significantly increases variable costs per unit because of the need to pay the skilled workers higher overtime wage rates. For output levels up to 80 percent of capacity, variable cost per unit is $100. Above 80 percent and up to 90 percent, variable costs on this additional output increase by 10 percent. When output is above 90 percent and up to 100 percent of capacity, the additional units cost an additional 25 percent over the unit variable costs for outputs up to 80 percent of capacity. For production above 100 percent and up to 110 percent of capacity, extensive subcontracting work is used and the unit variable costs of these additional units are 50 percent above those at output levels up to 80 percent of capacity. At 80 percent of capacity, the plant's fixed costs per unit are $50. Total fixed costs are not expected to change within the production range under consideration. Based on the preceding information, complete the following table.