Calculating Average Cost Changes from Input Utilization
A manufacturing company purchases a specialized machine that has a fixed operating cost of $1,000 per day, regardless of how many units are produced. Initially, the company produces 100 units per day. Later, it expands its operations and produces 800 units per day using the same machine.
Calculate the machine's average fixed cost per unit for both the initial and expanded production levels. Based on your calculations, explain why the average cost changes.
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Calculating Average Cost Changes from Input Utilization
A pharmaceutical company invests $10 million in a specialized, high-throughput screening robot that can analyze 100,000 chemical compounds per day. Initially, the company only has 10,000 compounds to test daily. As the company expands its research and begins using the robot to its full capacity of 100,000 tests per day, the $10 million initial investment, when calculated as a cost per test, effectively ____.