Answer to Question #304067 in Microeconomics for Entle

Question

The cost of producing 60 small fiberglass sailboats per year, and the cost of producing sails and fittings necessary to make the boats seaworthy in a single plant, are together R780,000. If produced in separate plants, the boats would cost R540,000, and the sails and fittings would cost R180,000. From this information, what can be learned about (1) economies of scale and (2) economies of scope in the production of sailboats, sails, and fittings? Perform any necessary calculations and explain.

Answer 1

1) Separate average cost of production;

$\frac{540000+ 180000}{60} = 12000$

Joint average cost of production;

$\frac{780000}{60} = 13000.$

Since joint production increases the average cost, there are diseconomies of scale.

2) Separate total cost of production .

$540000 + 180000 = 720000$

Joint total cost of production is 780000.

Since joint production increases the total cost, there are diseconomies