Refer to Table 11-9. Clock It To Me manufactures clock radios. The table above shows estimates of fixed cost per period and average variable cost for three possible plant sizes

a. You are employed as the company's cost accountant and have been asked to prepare cost estimates for various output levels for each of the three possible plant sizes. Record your calculations in the table below.
Average Cost of Production
5,000 Clock
Radios 8,000 Clock
Radios 20,000 Clock
Radios
Small plant
Medium plant
Large plant

b. For each of the three output levels, which plant size will generate the lowest average total cost of production?
c. Suppose the firm currently sells 8,000 clock radios per period (using the optimal plant size for this output level). Now, however, it has just secured a long-term contract to supply 20,000 clock radios per period. In the short run, what is the average total cost of producing 20,000 clock radios? Provide a numerical value based on your answer in part a.
d. What happens to average total cost of production in the long run? Provide a numerical value based on your answer in part a.

a.
Average Cost of Production
5,000 Clock
Radios 8,000 Clock
Radios 20,000 Clock
Radios
Small plant $4.00 $3.25 $2.50
Medium plant 4.30 3.18 2.05
Large plant 5.50 3.63 1.75

b. For an output of 5,000 units, the lowest average cost is achieved with a small plant size. For an output of 8,000 units, the lowest average cost is achieved with a medium plant size and for output 20,000 units the lowest average cost is achieved with a large plant size.
c. The firm currently has a medium-sized plant. In the short run, average total cost of producing 20,000 units is $2.05.
d. In the long run, when it is able to build a larger plant, the average total cost will fall to $1.75.