Chapter 8, Problem 41P

A computer company produces affordable, easy-to-use home computer systems and has fixed costs of $\$\text{25}0$.

The marginal cost of producing computers is $\$\text{7}00$ for the first computer, $\$\text{25}0$ for the second, $\$\text{3}00$ for the third, $\$\text{35}0$ for the fourth, $\$\text{43}0$ for the fifth, $\$\text{45}0$ for the sixth, and $\$\text{5}00$ for the seventh.

1. Create a table that shows the company’s output, total cost, marginal cost, average cost, variable cost, and average variable cost.
2. At what price is the zero-profit point? At what price is the shutdown point?
3. If the company sells the computers for $\$\text{5}00$, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVG curves to illustrate your answer and show the profit or loss.
4. If the firm sells the computers for $\$\text{3}00$, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVG curves to illustrate your answer and show the profit or loss.