Mario was considering going into the baking business. Mario knows that the baking industry is very uncertain and that his decisions regarding prices, costs and production are at the same time essential to the survival of the business. he must determine the pulse of the market. However, if he decides to work in another company, his choice will incur an opportunity cost. If Mario decides to go into baking, he needs some money to start his business. Total Fixed Cost Mario's first decision is to buy an oven. He thinks about this choice, there are so many ovens on the market. There are electric powered ovens, gas powered ovens, a combination of electricity and gas or it can have the old fashioned wood fired oven. To start, he chooses a small gas-powered oven which can cost P40,000. The model powered by electricity and gas costs P500,000. Mario chooses the small gas-powered oven, he thinks about the amortization of the equipment and the opportunity cost. The oven is a fixed input whose cost does not vary with the number of products produced. Now, even if Mario uses or doesn't use the oven, it depreciates. The cost of depreciation is a fixed cost. Mario chose the small gas-powered model which costs P40,000. This oven can bake 500 pieces of bread in 8 hours. Fixed Cost Calculation The furnace depreciates in 20 years with no salvage value, so the depreciation cost is (1/20) (P40,000) P2,000/year. For one day of activity, the fixed cost is P2,000/year x 1 year/365 days = P0.54 Total variable cost. Mario thinks about the variable cost of running the business. He needs workers, baking equipment, flour, lard, oil, water, sugar, yeast, baking powder and fuel. These items represent the variable cost of baking and vary depending on the quantity of bread produced. If ...... middle of paper ...... the entire reserve of spare parts, equipment and maintenance workers capable of repairing random equipment failures increases less than the increase the size of the bakery. The maintenance cost is spread over a large production volume, thereby reducing the average cost per unit. Firm-level economies, a situation in which economies of scale occur due to a multi-product, multi-plant business. Achieving efficiency requires reducing delivery costs through geographically dispersed multi-operational factories. In addition, the company can obtain quantity discounts on advertising media and spread its fixed advertising costs over a greater number of units produced. It is also easier for large companies to engage in technological advancement through their research and development (R&D) activities. They can spread the cost of purchasing expensive equipment and hiring research staff..