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Question
Werner & Sons is a manufacturer of three-ring binders operating in a perfectly competitive industry. Table 12-5 shows the firm's cost schedule.Table 12-5
| Quantity (cases) | Variable Cost | Total Cost | Marginal Cost | Average Variable Cost | Average Total Cost |
| 0 | $0 | $76 | |||
| 1 | 30 | 106 | |||
| 2 | 50 | ||||
| 3 | 134 | ||||
| 4 | 140 | ||||
| 5 | 160 | ||||
| 6 | 114 | ||||
| 7 | 150 | ||||
| 8 | 190 | ||||
| 9 | 316 |
Use the table to answer the following questions.
a. Complete Table 12-5 by filling in the blank cells.
b. Werner is selling in a perfectly competitive market at a price of $40. What is the profit maximizing or loss-minimizing output?
c. Calculate the firm's profit or loss.
d. Should the firm continue to produce in the short run? Explain.
e. If the firm's fixed costs were $30 higher what would be the profit-maximizing output level in the short run? Indicate whether the output level will increase, decrease or remain unchanged compared to your answer in b.
f. Suppose fixed cost remains at $76. If the price of three-ring binders falls to $20 what is the profit-maximizing or loss-minimizing output?
g. Calculate the profit or loss. Should the firm continue to produce in the short run? Explain your answer.
h. Suppose the fixed cost remains at $76. What price corresponds to the shut-down point?
i. Suppose the fixed cost remains at $76. What price corresponds to the break-even point?
Answer
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Which of the following would be categorized as an opportunity cost?
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A) a only
B) a and c only
C) b and c only
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