Case Study of Aluminum In1994.Docx
(a) A list indicating which categories cost you included in your determination of marginal cost. Briefly explain why you included these and excluded the other categories. |
- “Marginal Cost” is aggregation of variable costs whose amount varies pertaining to production quantity. The lists of marginal cost are as follows.
◎ The lists of marginal cost Item | Description | TotalElectricity Cost | in the case of new plant of Alusaf, it amount of 16% of per ton aluminum price for every ton of produced aluminumthus electricity is bundled with production | Total Alumina Cost | alumina is the raw material of smelter, naturally variable cost | Other Raw Materials | the amount of coke& pitch, bath materials used in the process depends on the production | Consumables | purchased anodes and pot relining materials | Freight | freight cost depends on the production quantity |
◎ Other fixed cost Item | Description | Maintenance | fixed cost | Labor | In manufacturing, labor cost is usually variable cost, however the material says that less production doesn't mean less labor thus smelting aluminum is not much dependent on labor amount | General andAdministrative | fixed cost | Plant Powerand Fuel | if the power and fuel is not related to potlines, it can be fixed cost |
(b) A graph of your market supply curve.(You may want to “dress it up” by adding appropriate axis labels, etc.) |
1) Market Supply Curve is sum of individual firms's supply curve
2) Because firms are price-takers, their marginal revenue equals market price and they maximize their profit when marginal revenue equals marginal cost.
Therefore, firms produce when marginal cost equals marginal revenue
(=market price).
(c) An answer to the following questions:a. According to the supply curve you constructed, how much output wouldbe supplied by the aluminum industry at a price of $1,100 per ton. How does this compare to actual production in 1993b. According to the supply
- “Marginal Cost” is aggregation of variable costs whose amount varies pertaining to production quantity. The lists of marginal cost are as follows.
◎ The lists of marginal cost Item | Description | TotalElectricity Cost | in the case of new plant of Alusaf, it amount of 16% of per ton aluminum price for every ton of produced aluminumthus electricity is bundled with production | Total Alumina Cost | alumina is the raw material of smelter, naturally variable cost | Other Raw Materials | the amount of coke& pitch, bath materials used in the process depends on the production | Consumables | purchased anodes and pot relining materials | Freight | freight cost depends on the production quantity |
◎ Other fixed cost Item | Description | Maintenance | fixed cost | Labor | In manufacturing, labor cost is usually variable cost, however the material says that less production doesn't mean less labor thus smelting aluminum is not much dependent on labor amount | General andAdministrative | fixed cost | Plant Powerand Fuel | if the power and fuel is not related to potlines, it can be fixed cost |
(b) A graph of your market supply curve.(You may want to “dress it up” by adding appropriate axis labels, etc.) |
1) Market Supply Curve is sum of individual firms's supply curve
2) Because firms are price-takers, their marginal revenue equals market price and they maximize their profit when marginal revenue equals marginal cost.
Therefore, firms produce when marginal cost equals marginal revenue
(=market price).
(c) An answer to the following questions:a. According to the supply curve you constructed, how much output wouldbe supplied by the aluminum industry at a price of $1,100 per ton. How does this compare to actual production in 1993b. According to the supply