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.
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a. |
Complete Table 12-5 by filling in the blank cells. |
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b. |
Werner is selling in a perfectly competitive market at a price of $40. What is the profit maximizing or loss-minimizing output? |
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c. |
Calculate the firm's profit or loss. |
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d. |
Should the firm continue to produce in the short run? Explain. |
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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. |
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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? |
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g. |
Calculate the profit or loss. Should the firm continue to produce in the short run? Explain your answer. |
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h. |
Suppose the fixed cost remains at $76. What price corresponds to the shut-down point? |
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i. |
Suppose the fixed cost remains at $76. What price corresponds to the break-even point? |
a.
| Quantity (cases) | Variable Cost | Total Cost | Marginal Cost | Average Variable Cost | Average Total Cost |
| 0 | $0 | $76 | -- | -- | $76 |
| 1 | 30 | 106 | $30 | $30 | 106 |
| 2 | 50 | 126 | 20 | 25 | 63 |
| 3 | 58 | 134 | 8 | 19.33 | 44.67 |
| 4 | 64 | 140 | 6 | 16 | 35 |
| 5 | 84 | 160 | 20 | 16.8 | 32 |
| 6 | 114 | 190 | 30 | 19 | 31.67 |
| 7 | 150 | 226 | 36 | 21.43 | 32.29 |
| 8 | 190 | 266 | 40 | 23.75 | 33.25 |
| 9 | 240 | 316 | 50 | 26.67 | 35.11 |
b.
c. | Profit = $54. |
d. | Yes, it is earning an economic profit. |
e. | The profit-maximizing output will not change since marginal cost is not affected by changes |
f. | Quantity = 5 units. |
g. | Loss = $60. Yes, it is loss-minimizing. |
h. | The shut-down point corresponds to a price of $16 and an output of 4 units. |
i. | The break-even point occurs at a price $31.67 and an output of 6 units. |