Technological change is and how you can use it to lower your costs

1,000 words plus table Details: You are the owner of a small bread factory and are thinking of lowering costs and expanding. Your small-business advisors suggested that you first review your operations and make some technological changes. Complete the following Explain what a technological change is and how you can use it to lower your costs. Assume that you thought of something innovative to change your process. Would it help you in the short run? How? The next thing that your small business advisors asked you to do was to break down your costs and see what you can reduce. Develop a table that you believe shows the explicit fixed costs of the bread factory and the total amount of the costs Describe your variable costs. Because you are not an expert yet on analyzing costs and optimal production levels, you decide to do a very simple analysis of your short-run fixed and variable costs if you expand. You decide that your only fixed cost will be the ovens and the variable costs will be the workers. Quantity of Workers Quantity of Ovens Quantity of Loaves of Bread Produced Cost of Ovens Cost of Workers Per Instructions 1.Graph the total cost and the average total cost. 2.Calculate the marginal product of labor, and add it to the table. 3.Calculate the average product of labor, and add it to the table. 4.What is the significance if one is greater than the other? 5.Although there seems to be a great demand for your bread, why would productivity decline when you hire more labor in the short run? How would that reflect on your production graph? 6. What are your marginal costs? 7.At what point do your marginal costs and your total costs intersect? 8.What happens to the total costs after this point? 9.Calculate your average total costs, your average fixed costs, and your average variable costs. 10.Is your marginal cost greater than or less than your average variable cost or your average total cost? What does that mean? Where do you want your marginal costs to be? 11. What happens to your average variable costs as your output goes up? Why is that? 12.Explain why in the bread-making business that, in the long run, all costs are variable and the average total costs equals the average variable costs. How would expanding the business affect the economies of scale? When would you have constant return to scale and diseconomies of scale? Provide examples. 13.Where is the optimal level of production and the optimal level of prices in the short run? Is there enough information to make a decision for the long run? What information do you need?

Sample Solution

Examining Costs and Innovation in a Small Bread Factory

Technological Change for Lower Costs

A technological change refers to the introduction of new equipment, software, or processes that improve efficiency or production capabilities. In a bread factory, technological changes could include:

Automated dough mixers: These can reduce labor costs and ensure consistent dough quality.
Programmable ovens: These allow for precise temperature and baking times, minimizing waste and energy consumption.
Inventory management software: This can optimize ordering and stock levels, reducing material waste.

By implementing these technologies, the factory can potentially lower labor costs, reduce material waste, and improve energy efficiency, all contributing to cost reduction.

My Innovative Idea

My innovative idea could be to develop a custom bread cooling system. Currently, most bakeries rely on air cooling, which can be slow and uneven, leading to inconsistent product quality. A faster, more controlled cooling system using specialized racks and airflow technology could improve bread quality, reduce cooling times, and allow for higher production volume.

Full Answer Section

In the short run, this innovation would require an initial investment but could lead to:

Increased production: Faster cooling times would allow for more frequent baking cycles.
Reduced waste: Improved cooling could minimize the risk of over-proofing or under-baked loaves.
Higher quality product: Consistent cooling ensures even textures and better shelf life.

These benefits could translate to higher revenues and potentially offset the initial investment within a reasonable timeframe.

Cost Breakdown

Here's a table outlining the explicit fixed costs and total costs:

Cost Category	Description	Total Cost
Fixed Costs
Rent	Building lease	$5,000 per month
Loan Payment	Equipment financing	$2,000 per month
Insurance	Building and equipment coverage	$1,000 per month
Total Fixed Costs		$8,000 per month
Variable Costs
Ingredients	Flour, yeast, sugar, etc.	Varies based on production
Utilities	Electricity, gas for ovens	Varies based on production
Packaging	Bags, boxes, labels	Varies based on production
Labor	Wages for bakers and assistants	Varies based on production
Total Variable Costs		Varies based on production

Short-Run Cost Analysis with Worker Expansion

Let's analyze the impact of adding workers while keeping oven capacity constant:

| Quantity of Workers | Quantity of Ovens (Fixed) | Quantity of Loaves Produced | Cost of Ovens | Cost of Workers Per Worker | Total Cost | |---|---|---|---|---|---|---| | 1 | 1 | 100 | $10,000 (Monthly) | $2,000 | $12,000 | | 2 | 1 | 150 | $10,000 (Monthly) | $2,000 | $14,000 | | 3 | 1 | 180 | $10,000 (Monthly) | $2,000 | $16,000 | | 4 | 1 | 190 | $10,000 (Monthly) | $2,000 | $18,000 | | 5 | 1 | 185 | $10,000 (Monthly) | $2,000 | $20,000 |

Graphing Costs:

Total Cost and Average Total Cost Graph: Plot the total cost (y-axis) against the quantity of loaves produced (x-axis). Then, calculate the average total cost (ATC) for each production level by dividing the total cost by the number of loaves produced. Plot the ATC points on the same graph.
Marginal Product of Labor (MPL): This measures the additional output produced by each additional worker. Calculate the MPL for each worker by subtracting the previous output from the current output (e.g., MPL for worker 2 = 150 loaves - 100 loaves = 50 loaves). Add the MPL to the table.
Average Product of Labor (APL): This measures the average output per worker. Calculate the APL for each worker by dividing the total output by the number of workers (e.g., APL for 2 workers = 150 loaves / 2 workers = 75 loaves/worker). Add the APL to the table.

Short-Run Cost Dynamics:

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