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? |
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Strategic Management and Competitive Advantage: Concepts and Cases, 6th Edition