The accompanying table shows a boat manufacturer’s total cost of producing boats. Quantity of Boats Total Cost 0 $ 450,000 1 $ 490,000 2 $ 510,000 3 $ 520,000 4 $ 540,000 5 $ 570,000 6 $ 610,000 7 $ 670,000 8 $ 750,000 9 $ 870,000 1. What is this manufacturer’s fixed cost? 2. For each level of output, calculate the variable cost (VC). For each level of output except zero output, calculate the average variable cost (AVC), average total cost (ATC), and average fixed cost (AFC). Qty of boats Total Cost Variable Costs a. Average Variable Costs b. Average Total Costs c. Average Fixed Cost d. 0 $450,000 - - - - 1 490,000 2 510,000 3 520,000 4 540,000 5 570,000 6 610,000 7 670,000 8 750,000 9 870,000 3. What is the minimum-cost output? 4. Joe Brown’s dairy operates in a perfectly competitive marketplace. Joe’s machinery costs $500 per day and is the only fixed input. His variable costs are comprised of the wages paid to the few workers he employs at the dairy and the grain he feeds to his dairy cows. His cost structure is shown on the accompanying table Gallons of Milk FC VC TC MC AVC ATC 0 $500 - $500 - - - 1000 500 $2,100 2,600 $2.10 $2.10 $2.60 2000 500 $2,200 2,700 $0.10 $1.10 $1.35 3000 500 $2,900 3,400 $0.70 $0.97 $1.13 4000 500 $3,680 4,180 $0.78 $0.92 $1.05 5000 500 $5,180 5,680 $1.50 $1.04 $1.14 4.
a. What is the break-even price?
b. What is the shut-down price?
c. If the market price of milk is $1.50 per gallon, will Joe make a profit? Explain.
d. If the market price of milk is $1.50 per gallon, should Joe continue to produce in the short run? Explain.
e. If the market price of milk is $1.00 per gallon, will Joe make a profit? Explain.
f. If the market price of milk is $1.00 per gallon, should Joe continue to produce in the short run? Explain.
g. If the market price of milk is $0.75 per gallon, will Joe make a profit? Explain.
4. h. If the market price of milk is $0.75 per gallon, should Joe continue to produce in the short run? Explain.