| Course | GB540 Economics for Global Decision Makers |
|---|---|
| Unit | Unit 4 |
| Paper type | Production cost analysis |
| Length | About 860 words, 6 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MBA |
| Updated | October 2026 |
Free sample paper for GB540 Unit 4
Overtime Until About 4,770 Motors: A Unit 4 Production Cost Analysis for an Outboard Plant
[Student Name]
Purdue University Global
GB540: Economics for Global Decision Makers
Unit 4 Production Cost Analysis
[Instructor Name]
[Date]
Ruddiman Marine, its plant and every cost figure are composite and illustrative; the economics sources cited are real.
The Plant and Its Costs
Ruddiman Marine assembles its electric outboards on one shift in Muskegon. Fixed cost, covering the building, equipment, salaried staff and insurance, is $2.9 million a year. On straight time, each motor costs $2,280 in variable cost, of which the battery pack accounts for $1,400, with the motor, controller, housing, labor and test making up the rest.
One shift can build 3,200 motors a year. Above that, the plant must either run overtime or add a second shift. Overtime raises the cost of each additional motor because overtime labor is paid at a premium and scrap rises as crews tire. From plant records, the overtime premium on the first motor past 3,200 is about $130 and rises by about 12 cents for each motor after that.
The Cost Schedule
Each row gives total cost, average fixed cost, average variable cost, average total cost and the marginal cost of the last motor.
2,000 motors. Total $7.46 million. Average fixed $1,450, average variable $2,280, average total $3,730, marginal $2,280.
2,400 motors. Total $8.37 million. Average fixed $1,208, average variable $2,280, average total $3,488, marginal $2,280.
2,800 motors. Total $9.28 million. Average fixed $1,036, average variable $2,280, average total $3,316, marginal $2,280.
3,200 motors. Total $10.20 million. Average fixed $906, average variable $2,280, average total $3,186, marginal $2,280.
3,600 motors. Total $11.17 million. Average fixed $806, average variable $2,297, average total $3,103, marginal $2,458.
4,000 motors. Total $12.16 million. Average fixed $725, average variable $2,316, average total $3,041, marginal $2,506.
4,400 motors. Total $13.17 million. Average fixed $659, average variable $2,335, average total $2,994, marginal $2,554.
4,800 motors. Total $14.21 million. Average fixed $604, average variable $2,355, average total $2,960, marginal $2,602.
5,200 motors. Total $15.26 million. Average fixed $558, average variable $2,376, average total $2,934, marginal $2,650.
Reading the Schedule
Average total cost falls across the whole range, because fixed cost is spread over more motors. But marginal cost rises above 3,200. At 3,600 motors, the last motor costs $2,458 to build, $178 more than on straight time. Pricing and output decisions should use that marginal figure, not the average. A motor priced above $2,458 plus delivery adds to profit at 3,600 even though average total cost is $3,103.
Average cost tells the firm whether it is profitable overall, but only marginal cost tells it whether the next motor is worth building.
Overtime Against a Second Shift
A second shift would add $310,000 a year in supervision and support, plus a night premium of $26 on each motor built on it. Overtime has no fixed addition but a premium that rises with volume.
At 3,600 motors. The 400 motors above straight time cost $61,600 in overtime premium. On a second shift they would cost $310,000 plus 400 times $26, or $320,400. Overtime is cheaper by about $258,800.
At 4,800 motors. Overtime premium on 1,600 motors is about $361,600. A second shift costs $310,000 plus $41,600, or $351,600. The second shift is now cheaper.
The crossover. Setting the two equal gives about 1,566 motors above straight time, or a total near 4,770. Below that volume, overtime costs less. Above it, a second shift does.
This is the short-run choice Viner (1932) described, in which the firm moves along the cost curve of its current plant arrangement until another arrangement becomes cheaper. Bresnahan and Ramey (1994) found that automobile assembly plants adjust output in the same way, varying hours and adding or dropping shifts rather than changing the line itself.
A Pack Discount
The battery supplier offers a 3 percent discount on packs above 4,000 a year, worth $42 a motor. At 3,600 motors the discount does not apply. Even at 4,000, it would save only about $168,000 across the year if applied to every pack, so it does not change the shift decision.
What Could Change the Answer
Three things would move the crossover. If overtime premiums rise faster than plant records suggest, because crews refuse extra hours in summer, the crossover falls toward 4,500 and a second shift becomes worth planning earlier. If the second shift's supervision could be shared with the warehouse, cutting its fixed addition to about $250,000, the crossover falls to about 4,550. And if orders arrive unevenly, with most motors needed in spring, overtime concentrated in a few months will cost more per motor than the annual average suggests, because the premium rises with the hours worked in each week, not across the year. The plant should track weekly overtime hours against this schedule from the first month.
Recommendation
Meet next year's 3,600 motors with overtime. Revisit a second shift only if orders approach about 4,770. Use $2,458 plus delivery as the marginal cost in next year's pricing, since the markup that matters for a pricing decision is the gap between price and marginal cost (Lerner, 1934).
References
Bresnahan, T. F., & Ramey, V. A. (1994). Output fluctuations at the plant level. The Quarterly Journal of Economics, 109(3), 593-624. https://doi.org/10.2307/2118415
Lerner, A. P. (1934). The concept of monopoly and the measurement of monopoly power. The Review of Economic Studies, 1(3), 157-175. https://doi.org/10.2307/2967480
Viner, J. (1932). Cost curves and supply curves. Zeitschrift für Nationalökonomie, 3(1), 23-46. https://doi.org/10.1007/BF01316299
GB540 Unit 4 instructions, in plain terms
In the fourth GB540 assignment, a firm's production costs become the basis for an output decision. Describe the plant, its fixed and variable costs and its capacity, and explain what makes marginal cost rise above capacity. Build a cost schedule across a range of output, giving total cost, average fixed, average variable and average total cost and marginal cost for each row. Explain what the schedule shows and why marginal cost, not average cost, should guide decisions about additional output. Compare two ways of expanding output, such as overtime and a second shift, at several volumes, and find the volume at which they cost the same. Discuss any discounts or factors that could change the answer. Close with a recommendation. About six pages built around a schedule and a comparison is common.
How this GB540 Unit 4 example is built
The sample describes Ruddiman's plant and explains, in a margin note, that overtime premiums and scrap drive rising marginal cost. A nine-row schedule follows from 2,000 to 5,200 motors. The reading section explains why average total cost falls while marginal cost rises, and the highlighted sentence separates the two. The overtime and second-shift comparison is worked at 3,600 and 4,800 motors, and the crossover near 4,770 is found, with Viner on short-run arrangements and Bresnahan and Ramey on automobile plants. A margin note explains the value of a volume to watch. A pack discount is ruled out, a section shows what could move the crossover, and the recommendation cites Lerner on marginal cost.
Where the points sit in the GB540 Unit 4 rubric
Points in the GB540 cost analysis go to accurate schedules and correct use of marginal reasoning. The plant description should state fixed and variable costs and capacity. The schedule should be complete and internally consistent. Explaining why marginal cost guides output decisions, and average cost does not, is central. Comparing expansion options at several volumes earns credit, and finding the crossover shows command of the method. Discussing factors that could move the answer shows judgment. Discounts or other cost changes should be tested against the decision rather than assumed to matter. A clear recommendation tied to a volume threshold completes the work. Economic sources should support the reasoning, cited in APA 7.
Common GB540 Unit 4 mistakes, and how to avoid them
Many GB540 cost analyses compute average cost and use it to decide on more output, which overstates the cost of the next unit when fixed costs are high. Others build a schedule but never use it for a decision. Students often compare expansion options at one volume only, missing the crossover. Rising marginal cost is assumed without saying where it comes from. Factors that could change the answer are left out. Describe the plant, build a full schedule, explain marginal reasoning, compare options across volumes, find the crossover, test any discounts and note what could move the result. Bring your cost figures, and our team can help build the schedule.
Get a GB540 Unit 4 example written to your instructions
Start with your Unit 4 cost data or scenario, plus the prompt and the rubric. A sample with the full cost schedule, marginal figures shown row by row, and the decision the prompt poses solved in the open comes back in 24-48h, the first one free. If the unit's seminar worked marginal figures, mention them so the sample matches. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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GB540 Unit 4 questions, answered
Why does marginal cost matter more than average cost for this decision?
Because the decision is about additional output. Average cost spreads fixed cost across every unit already made, so it says little about what one more unit adds. If marginal cost is below the price the extra unit earns, making it raises profit, whatever the average shows. Most GB540 prompts in this unit test exactly that distinction in some form.
Should sunk costs appear in a production cost analysis?
They can appear, labeled, but they should not influence the decision. Money already spent on tooling or equipment is gone whichever option the firm chooses. Include only costs that change with the choice: added labor, supervision, scrap and materials. Graders often check this specifically, so name any sunk cost you exclude and say why it stays out.
What if my cost data do not produce U-shaped curves?
Report what the data show. Many real plants operate on the falling portion of average cost, especially with high fixed costs, and a paper that notices this is stronger than one forcing a textbook shape onto the numbers. Explain why average cost behaves as it does, usually by comparing it with marginal cost at each output level.
Where can I find a free GB540 Unit 4 sample paper?
A complete GB540 Unit 4 production cost analysis is on this page, with a cost schedule for an outboard plant and an overtime and second-shift comparison.
Why use marginal cost rather than average cost for extra output?
Average cost spreads fixed costs that do not change with output. Marginal cost measures what the next unit actually adds, which is what an output decision turns on.