Remember to cite the source with at least three scholarly sources. If there are any questions please free to ask. I will upload the Unit 5 podcast.
For the Units 5 and 6 Complete, you must either use automatic formulas in each cell of the spreadsheet (for example, (b8-b1)/2) or submit a document showing where you have worked out the calculations by hand. Just typing in how the cost measures are calculated (for example, ATC = TC/Q) will not be sufficient. This is a very important step in showing that you understand the calculations and know how to apply the concept of profit maximization. You will not receive full credit for your spreadsheet if you do not show your detailed work.
Please let me know if you need any clarification on how these calculations should be submitted.
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.
Assume that the world market demand and supply curves for clay fire pots intersects at $200 per unit.
The spreadsheet provided in the Course Materials gives some of Redstone’s production cost data. Add columns to show, respectively, average fixed cost (AFC), average variable cost (AVC), average total cost (ATC), and short-run marginal cost (SMC). Then, add columns to show, respectively, total revenue (TR), marginal revenue (MR), total profit, average profit, and profit margin.
Place your completed spreadsheet in the Drop Box, and use it to answer the following questions. Your spreadsheet is worth 15 points.
Your spreadsheet must include formulas showing how you arrived at the calculations. As an alternative, you may also submit a document showing your step-by-step calculations for each of the cells. You will not receive credit if you do not show your work using one of these two methods.
For Questions 2, 4, and 5, be sure to employ both of the General Rules for Implementing the Output Decision in your explanations.
- If Redstone wishes to maximize profit margin, how many units should it produce?
- What level of output should the manager of Redstone choose to produce? Explain your choice in at least 100 words
- Are your output choices the same in questions 1 and 2? Why or why not? Explain using at least 100 words.
- Make a copy of your spreadsheet and triple the fixed costs to 15,000. How does this change your answer to question 2? Explain your result in at least 100 words.
- Make another copy of your spreadsheet and suppose that fire pits fall out of fashion causing prices fall worldwide to $95. How many units should the manager choose to produce? Explain your answer using at least 100 words.