17.9k views
2 votes
The variety of Riverside Ranger logo T-shirts includes 12 different designs. Setup between designs takes one hour (and $15,000), and, after setting up, you can produce 1,000 units of a particular design per hour (at a cost of $5,000).

Does this production exhibit scale economies or scope economies?

User Edebill
by
8.0k points

1 Answer

5 votes

Answer: Scale Economies

Step-by-step explanation:

Scale Economies or Economies of scale refers to a situation whereby a company stands to save more on costs if it produces more goods and services. The more they produce, the more they save.

Riverside Ranger logo T-shirts take $15,000 to set up and that is a set cost.

After that, it will cost $5,000 to make every 1,000 units per design.

The Marginal cost = 5,000/1,000 = $5

Total Cost is the initial cost + the marginal cost per unit.

Total Cost = $15,000 + 5Q

Average Cost =
(15,000)/(Q) + 5

Therefore as Quantity increases, Average cost will decrease showing Scale Economies.

User Grantland Chew
by
8.1k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

9.4m questions

12.2m answers

Categories