Economics for Business Decisions Term Paper Example | Topics and Well Written Essays - 3250 words

Economics for Business Decisions - Term Paper Example If Always Round Tire doubles the size of its production facility – increasing L from 250 to 500 and K from 25 to 50 – what happens to the cost of production, even though we do not know the wages of labor or the price of capital?   This production exhibits increasing returns to scale. Doubling the scale of production will more than double the quantity of output. Costs per unit will decline because the firm takes advantage of the economies of scale. Why do economies of scale and learning curve effects look similar when they are graphed? What different concepts do they represent?   A graph of economies of scale shows that average costs per unit of output fall when the quantity of output increases. However, this decrease in the average cost per unit of output occurs at a decreasing rate. Economies of scale show the cost advantages larger firms have in some industries, like basic metals, where costs per unit fall with the cumulative volume of output. A graph of a learnin g curve shows that average costs per unit of output fall when the cumulative quantity of output produced since inception increases. This decrease in the average cost per unit of output occurs at a decreasing rate. Learning curves show the cost advantages firms that have cumulatively produced greater amounts of output have in some industries, like semiconductors. For many corporations, a major portion of the cost of production is fixed in the short run. ... In the long-run all costs are variable costs and there are no long-run fixed costs.    Wanda Weeks is tired of running her small machine tool company. She wishes to sell it in order use her time and money elsewhere. She is currently earning a salary of $85,000 per year and a 10% return on her capital investment. She wants to take a job in a bank and invest her capital in a mutual fund. What issues should she look at before making the decision to change careers?   She should look at the opportunity cost of her time and capital. The total opportunity cost running her machine tool business is the value of both her time and her capital. She should compare how much she could earn from both labor income and selling her capital investment in the machine tool business to her current labor income and capital return as the owner of this business. The Springfield Bank received 1500 inquires following its latest advertisement describing its "establish a Certificate of Deposit (CD)-get a free CD (compact disk)" promotion in the Springfield Shopper, a local newspaper. The most recent similar ad in a similar advertising campaign in the Brockman Business Newsletter, a local business publication generated 500 inquires. Each ad in the Springfield Shopper costs $500. Each ad in the Brockman Business Newsletter costs $125. Inquires from both publications have the same success rate in turning inquires into sales. (a.) Assuming that additional ads will generate similar response rates, is Springfield Bank running an optimal mix of ads in the Springfield Shopper and the Brockman Business Newsletter? Why or why not? (b.) If you claim that the Springfield Bank is currently running an optimal mix of ads clearly explain why they are using an optimal mix of ads. If you claim that the Springfield