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Subpart (a):
The fixed cost,
Subpart (a):
![Check Mark](/static/check-mark.png)
Explanation of Solution
The table – 1 represents the value of the cost of the production.
Table – 1
Quantity | Total fixed cost | Total variable cost |
0 | 100 | 0 |
1 | 100 | 50 |
2 | 100 | 70 |
3 | 100 | 90 |
4 | 100 | 140 |
5 | 100 | 200 |
6 | 100 | 360 |
The average fixed cost can be determined by using the formula.
Substitute the respective value in equation (1) to calculate the average fixed cost for 1st unit.
The average fixed cost is $100.
The table - 2 shows the value of the average fixed cost that is obtained by using the equation (1).
Table - 2
Quantity | Total fixed cost | Total variable cost | Average fixed cost |
0 | 100 | 0 | – |
1 | 100 | 50 | 100 |
2 | 100 | 70 | 50 |
3 | 100 | 90 | 33.3 |
4 | 100 | 140 | 25 |
5 | 100 | 200 | 20 |
6 | 100 | 360 | 16.7 |
The average variable cost can be determined by using the formula.
Substitute the respective value in equation (2) to calculate the average variable cost for 1st unit.
The average variable cost is $50.
The table -3 shows the value of the average variable cost that is obtained by using the equation (2).
Table – 3
Quantity | Total fixed cost | Total variable cost | Average fixed cost | Average variable cost |
0 | 100 | 0 | – | – |
1 | 100 | 50 | 100 | 50 |
2 | 100 | 70 | 50 | 35 |
3 | 100 | 90 | 33.3 | 30 |
4 | 100 | 140 | 25 | 35 |
5 | 100 | 200 | 20 | 40 |
6 | 100 | 360 | 16.7 | 60 |
The average total cost can be determined by using the following formula.
Substitute the respective value in equation (3) to calculate the average total cost for 1st unit.
The average total cost is $150.
The table -4 shows the value of the average total cost thatis obtained by using the equation (3).
Table – 4
Quantity | Total fixed cost | Total variable cost | Average fixed cost | Average variable cost | Average total cost |
0 | 100 | 0 | – | – | – |
1 | 100 | 50 | 100 | 50 | 150 |
2 | 100 | 70 | 50 | 35 | 85 |
3 | 100 | 90 | 33.3 | 30 | 63.3 |
4 | 100 | 140 | 25 | 35 | 60 |
5 | 100 | 200 | 20 | 40 | 60 |
6 | 100 | 360 | 16.7 | 60 | 76.7 |
The marginal cost can be determined by using the formula.
Substituting the respective value into equation (4) and calculate the marginal cost for 1st unit.
The marginal cost is $20.
The table -5 shows the value of the marginal cost that is obtained by using the equation (4).
Table – 5
Quantity | Total fixed cost | Total variable cost | Average fixed cost | Average variable cost | Average total cost | Marginal cost |
0 | 100 | 0 | – | – | – | – |
1 | 100 | 50 | 100 | 50 | 150 | 50 |
2 | 100 | 70 | 50 | 35 | 85 | 20 |
3 | 100 | 90 | 33.3 | 30 | 63.3 | 20 |
4 | 100 | 140 | 25 | 35 | 60 | 50 |
5 | 100 | 200 | 20 | 40 | 60 | 60 |
6 | 100 | 360 | 16.7 | 60 | 76.7 | 160 |
Concept Introduction:
Average fixed cost: The average fixed cost is the total fixed cost per unit of the output produced by the firm.
Average total cost: Initially average total cost will decline as fixed cost spreads over a larger number of units but the curve will go up when the marginal cost increases.
Average variable cost: Average variable cost refers to the variable cost per unit.
Marginal cost (MC): The marginal cost refers to the amount of an additional cost incurred in the process of increasing one more unit of output.
Subpart (b):
The fixed cost, average variable cost, average total cost, and marginal cost, profit or loss of the firm if they shutdown, profit or loss of the firm if they continue to produce.
Subpart (b):
![Check Mark](/static/check-mark.png)
Explanation of Solution
Suppose the price of the ball bearing $50, the firm can produce 4 unit of the output because the price is equal to marginal cost that is the profit maximizing condition. Then the total cost of the production is $240
Concept Introduction:
Average fixed cost: The average fixed cost is the total fixed cost per unit of the output produced by the firm.
Average total cost: Initially average total cost will decline as fixed cost spreads over a larger number of units but the curve will go up when the marginal cost increases.
Average variable cost: Average variable cost refers to the variable cost per unit.
Marginal cost (MC): The marginal cost refers to the amount of an additional cost incurred in the process of increasing one more unit of output.
Subpart (c):
The fixed cost, average variable cost, average total cost, and marginal cost, profit or loss of the firm if they shutdown, profit or loss of the firm if they continue to produce.
Subpart (c):
![Check Mark](/static/check-mark.png)
Explanation of Solution
Suppose CEO decides to produce 1 unit of ball, then the total cost of the firm is $150
Concept Introduction:
Average fixed cost: The average fixed cost is the total fixed cost per unit of the output produced by the firm.
Average total cost: Initially average total cost will decline as fixed cost spreads over a larger number of units but the curve will go up when the marginal cost increases.
Average variable cost: Average variable cost refers to the variable cost per unit.
Marginal cost (MC): The marginal cost refers to the amount of an additional cost incurred in the process of increasing one more unit of output.
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Chapter 13 Solutions
EBK ESSENTIALS OF ECONOMICS
- The following are the cost information of a typical ice tea company in an industry with 100 firms. Output (ice tea per hour) Marginal Cost ($ per ice tea) Average Variable Cost ($ per ice tea) Average Total Cost ($ per ice tea) 3 2.50 4.00 7.33 4 2.20 3.53 6.03 5 1.90 3.24 5.24 6 2.00 3.00 4.67 7 2.91 2.91 4.34 8 4.25 3.00 4.25 9 8.00 3.33 4.44 d) Is the price $8 a short-run or long-run equilibrium price for the industry? If the price is not a long run equilibrium price, what adjustments are likely to happen in the market for it to reach long run equilibrium. e) What price must prevail in the market for a typical firm to operate in the short run? At this price, how many ice tea will be supplied by all firms in the market?arrow_forwardThe following are the cost information of a typical ice tea company in an industry with 100 firms. Output (ice tea per hour) Marginal Cost ($ per ice tea) Average Variable Cost ($ per ice tea) Average Total Cost ($ per ice tea) 3 2.50 4.00 7.33 4 2.20 3.53 6.03 5 1.90 3.24 5.24 6 2.00 3.00 4.67 7 2.91 2.91 4.34 8 4.25 3.00 4.25 9 8.00 3.33 4.44 a) At the price of $2.20 per ice tea, what is the firm’s profit maximizing level of output? Why is this the profit maximizing level of output for the firm? b) If the market price is $8 per ice tea and the firm is producing six (6) ice tea per hour, is the firm maximizing profit or not? Why or why not? If the firm is not maximizing profit, what should it do to maximize profit? c) At the price of $8 per ice tea, what is the firm’s profit-maximizing level of output? Why is this the profit maximizing level of output? What is the firm’s economic profit at…arrow_forwardThis is a graph of our firm’s costs. Label the lines on the graph using the following labels: average fixed cost (AFC), average variable cost (AVC), average total cost (ATC) marginal cost (MC). Then label the shut down and breakeven points on the graph.arrow_forward
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