econ 340
Econ 340
10/10/2013
Assignment 6
Marginal Analysis and the Optimal Level of Quality
1.)
The Standard cost of quality model is similar to the group size model because both models reach an optimal “size” or “level” of “perfection”. These models are similar because they both have a definition of what is technically perfect although there may be other complications such as overcrowding, lack of quality, or other available alternatives. In the Standard cost of quality model this “level of perfection” is when the total quality cost is minimized. In the group size model the “perfect size” of a group is when the cost per a member is lowest. However these two models also differ. In the group size model the total cost per a member is lowest when both the fixed cost and variable cost are in equilibrium whereas in the Standard cost of quality model the total cost of quality is not lowest when the cost of poor quality and cost of achieving good quality are not in equilibrium. To make these two factors be in equilibrium it would raise our total cost of quality a little bit and our “perfect size” is no longer present.
2.) The minimum cost of quality occurs slightly before the cost of poor quality and the cost of achieving good quality are at equilibrium. This is at the point where the total quality cost is lowest. The marginal cost of quality is the additional cost that would occur for any change in quality. The marginal cost of quality is shown on the total cost of quality curve where they intersect on an upward slope. Initially total cost is decreasing when marginal cost is negative. But as soon as marginal cost becomes positive then total cost starts become positive. Eventually the marginal cost of quality curve intersects with the total cost of quality curve.
Circle the min point on the total cost of quality curve and draw line from it. On the other side of the line write, “We are now at the point where the total cost of quality is
10/10/2013
Assignment 6
Marginal Analysis and the Optimal Level of Quality
1.)
The Standard cost of quality model is similar to the group size model because both models reach an optimal “size” or “level” of “perfection”. These models are similar because they both have a definition of what is technically perfect although there may be other complications such as overcrowding, lack of quality, or other available alternatives. In the Standard cost of quality model this “level of perfection” is when the total quality cost is minimized. In the group size model the “perfect size” of a group is when the cost per a member is lowest. However these two models also differ. In the group size model the total cost per a member is lowest when both the fixed cost and variable cost are in equilibrium whereas in the Standard cost of quality model the total cost of quality is not lowest when the cost of poor quality and cost of achieving good quality are not in equilibrium. To make these two factors be in equilibrium it would raise our total cost of quality a little bit and our “perfect size” is no longer present.
2.) The minimum cost of quality occurs slightly before the cost of poor quality and the cost of achieving good quality are at equilibrium. This is at the point where the total quality cost is lowest. The marginal cost of quality is the additional cost that would occur for any change in quality. The marginal cost of quality is shown on the total cost of quality curve where they intersect on an upward slope. Initially total cost is decreasing when marginal cost is negative. But as soon as marginal cost becomes positive then total cost starts become positive. Eventually the marginal cost of quality curve intersects with the total cost of quality curve.
Circle the min point on the total cost of quality curve and draw line from it. On the other side of the line write, “We are now at the point where the total cost of quality is