Assignment:
Price and Profits
Cold Case, Inc., produces beverage containers used by fast food franchises. This is a perfectly competitive market. Production limitations require that cup lots be produced only in units of 100 as shown in the table below. The following relation exists between the firm's beverage container output per hour and total production costs:
|
Q
|
TC
|
|
0
|
$ 35.00
|
|
100
|
$ 65.00
|
|
200
|
$ 93.00
|
|
300
|
$120.00
|
|
400
|
$155.00
|
|
500
|
$210.00
|
|
600
|
$285.00
|
|
700
|
$365.00
|
A. Construct a table showing the average variable, average total, and marginal costs of paper cup production. Show your work or embed an Excel spreadsheet into your file showing the formulas you used.
B. At what price would the firm earn a normal profit? Explain and show your work.
C. What is the lowest price this firm would accept and still be willing to produce? Explain and show your work.
D. How many cups would the company supply at industry prices of $0.45 and $0.30? Be sure to show all your calculations and explain your answers well.