LEGO Says It Will spend $1 Billion to Build New Toymaking Plant

EconEye Admin

4 years ago

The LEGO Group, which has six plants worldwide, will build its first U.S.-based manufacturing plant in Virginia. The 1.7-million square-foot plant, located on 340 acres, will cost $1 billion and when completed will provide 1,760 jobs.—progress-index.com

Answer the following questions to check your understanding of the story.

Is LEGO’s decision to build a plant in Virginia a long-run decision or a short-run decision?

LEGO’s decision to build a plant in Virginia is a ______________.

a) short-run decision because LEGO is increasing its workforce, a variable factor of production

b) short-run decision because with previous plant building experience, LEGO’s new plant will be quickly operational

c) long-run decision because the firm is changing its plant

d) long-run decision because it takes years to find the financing for a $1 billion plant

Wrong! - What changes can a firm make in the short run? What changes can a firm make in the long run? What is LEGO’s decision? Is this decision a short-run decision or a long-run decision?

That's Right! - The long run is a time frame in which the quantities of all factors of production can be varied. The plant is fixed in the short run and because LEGO is changing its plant along with the quantity of labor it hires, it is making a long-run decision.

What are examples of LEGO’s fixed costs in its Virginia plant and what is the shape of its total fixed cost curve?

LEGO’s fixed costs include ______________. Its total fixed cost curve is ______________.

a) the cost of the plant and the cost of the land; horizontal

b) the wages of its 1,760 workers; horizontal

c) its sunk costs; U-shaped

d) the cost of the plant and the cost of the land; downward sloping

Wrong! - Fixed costs include the costs of the firm’s fixed factors of production? What are LEGO’s fixed factors of production? Do the costs of these factors change as LEGO increases production? What is the shape of LEGO’s total fixed cost curve?

That's Right! - Fixed costs include the costs of the firm’s fixed factors of production. LEGO’s fixed costs include the cost of the plant and the cost of the land. Fixed costs don’t change as LEGO increases production of toys, so the total fixed cost curve is horizontal.

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