Question

In: Economics

Consider total cost and total revenue, given in the following table: In the final column, enter...

Consider total cost and total revenue, given in the following table:

In the final column, enter profit for each quantity. (Note: If the firm suffers a loss, enter a negative number in the appropriate cell.)

Problems and Applications Q4

Ball Bearings, Inc., faces costs of production as follows:

Quantity

Total Fixed Costs

Total Variable Costs

(Dollars)

(Dollars)

0 100 0
1 100 50
2 100 70
3 100 90
4 100 140
5 100 200
6 100 360

Complete the following table by calculating the company's total cost, marginal cost, average fixed cost, average variable cost, and average total cost at each level of production.

Quantity

Total Cost

Marginal Cost

Average Fixed Cost

Average Variable Cost

Average Total Cost

(Dollars)

(Dollars)

(Dollars)

(Dollars)

(Dollars)

0
1         
2         
3         
4         
5         
6         

The price of a case of ball bearings is $50. Seeing that he can't make a profit, the company's chief executive officer (CEO) decides to shut down operations.

The firm's profit in this case is

. (Note: If the firm suffers a loss, enter a negative number in this cell.)

True or False: This was a wise decision.

True

False

Vaguely remembering his introductory economics course, the company's chief financial officer tells the CEO it is better to produce 1 case of ball bearings, because marginal revenue equals marginal cost at that quantity.

At this level of production, the firm's profit is

. (Note: If the firm suffers a loss, enter a negative number in this cell.).

True or False: This is the best decision the firm can make.

True

False

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In order to maximize profit, how many units should the firm produce? Check all that apply.

4

5

6

7

In the previous table, enter marginal revenue and marginal cost for each quantity.

On the following graph, use the green points (triangle symbol) to graph the marginal-revenue curve, then use the orange points (square symbol) to plot the marginal-cost curve. (Note: Be sure to plot from left to right and to plot between integers. For example, if the marginal cost of increasing production from 1 unit to 2 units is $5, then you would plot a point at (1.5, 5).)

Marginal RevenueMarginal Cost01234567109876543210Revenue and CostsQuantity

The marginal-revenue curve and the marginal-cost curve cross at a quantity   .

This firm   in a competitive industry, because marginal revenue is   as quantity increases.

True or False: The industry is in a long-run equilibrium.

True

False

Solutions

Expert Solution

price=$50 and CEO decides to shut.

Profit= -$100

False-

This was not a wise decision as firm will suffer loss of $100 after shutting down. Instead if it produced 4 units, it will suffer a loss of $40.

When MC=MR, Q=1.

Profit=-$100

False-

This is not the best decision of the firm as loss is not minimized.

● 4 units

reason- At Q=4, loss is minimized. Loss =-$40.

The marginal-revenue curve and the marginal-cost curve cross at a quantity =4.

This firm IS in a competitive industry, because marginal revenue is SAME as quantity increases.

False:

The industry is not in a long-run equilibrium. As P is not equal to minimum of ATC.


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