Engineering Economy: Tricky fixed cost problem

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Discussion Overview

The discussion revolves around a homework problem related to fixed and variable costs in an engineering economy context. Participants explore how to determine these costs based on given data points and the implications of a discount rate.

Discussion Character

  • Homework-related

Main Points Raised

  • John pays $500 for 5 black shirts, and he wants to buy 10 red shirts at $11 each, prompting a question about fixed and variable costs.
  • One participant initially assumes the fixed cost is $500 and expresses confusion about applying the discount rate, suggesting it may be a distraction.
  • Another participant agrees that the discount rate is not relevant and encourages the use of a linear variable cost relationship.
  • There is a discussion about calculating the total amount spent by John, with one participant proposing that it totals $610.
  • Participants confirm the data points for the calculation as ($500,5) and ($610,15), indicating a progression in their understanding of the problem.

Areas of Agreement / Disagreement

Participants generally agree on the irrelevance of the discount rate and the approach to finding fixed and variable costs, but the discussion does not resolve the exact methodology for determining these costs.

Contextual Notes

There is uncertainty regarding the correct application of data points and the implications of the discount rate, as well as the potential for negative marginal costs based on initial assumptions.

jdawg
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Homework Statement


John pays $500 to a tailor for a regular supply of new shirts. The tailor delivers 5 black shirts. He next wants to purchase 10 red shirts at the contract rate of $11 per shirt. For the black and the red shirts together, what are the fixed and variable cost of the shirts? John's discount rate is 12%.

Homework Equations

The Attempt at a Solution



Hi! So I'm having a lot of trouble with this problem. The first time I attempted this problem I assumed that the fixed cost was $500 and tried applying the discount rate to the $11 per red shirt and multiplying by 10. This was completely wrong. I think the discount rate is thrown in there to confuse me.
What I'm supposed to do is find two data points and then use y=mx+b to find the fixed and variable cost. But how do I find the data points?

Can I just do this?:

($500,5) ($110,10) (I multiplied 10*$11)

But I think this gives me a negative marginal cost... Which means this is wrong also.
 
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I agree that the discount rate is not applicable here.

I think you have the right idea assuming a linear variable cost relationship. Just need to plug in the right numbers.

At the end of the day, what is the total money spent by John?
 
Is $610 the total amount spent?
 
At the end of the day it is, right?
 
I think so! So my data points are ($500,5) and ($610, 15)?
 
You got it!
 
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Awesome! Thanks so much!
 

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