Cost and Revenue Curves

Cost and Revenue Curves Simulation

Cycle #1 -

a) Which state did you choose to set up the factory

__ California According to University of Phoenix simulation (2002), California was the obvious choice to set up a factory to produce orange juice.

b) What level did you choose to maximize profits

__ 120,000 tons

c) What economic reasoning led you to these decisions

__ This number produced the greatest total profit for the organization. Although there was evidence that a greater profit per unit was possible, the total profit was maximized at 120,000 tons production (University of Phoenix, 2002).

d) Does maximizing the profit per unit mean overall maximum profit?

__ Maximizing the profit per unit does not mean that the overall total profit will be maximized. Other factors such as marginal revenue and marginal cost can affect total profit as well (University of Phoenix, 2002).

Cycle #2 -

a) Since the cost of oranges reduces, how many units of production do you choose now for maximum profits

__ 130,000 tons

b) What economic reasoning led you to this decision

__ The graph in the simulation showed that any increase in production would lower overall profit as would any decrease. At 130,000 tons of orange juice produced, the company would increase profit from the previous cycle with maximum return. The cost reduction of oranges results in a lower average total cost (ATC), which produces a greater profit per unit (University of Phoenix, 2002).

Cycle #3 -

a) The market is flooded with cheaper imports, what do you choose to do

__ Shutdown

b) What economic reasoning led you to this decision

__ The decision to shut down production temporarily was economically more than to incur production costs. This saved the organization in the long term by taking a loss in the short-term (University of Phoenix, 2002).

Cycle #4 -

a) The state government offers tax cuts, what is now your choice of production level

__ 90,000 tons

b) What economic...