Question

complete the cost table and select the best output you would advise the manager to produce when the price of the product is 75 dollar   

Q	TC	TFC	TVC	AC	AFC	AVC	MC
0	120			X	X	X	X
1				265
2			264
3				161
4							85
5			525
6				120
7						97
8			768
9						97
10							127

Answer 1

General formula which have been used to fill the table are:

1) At q=0, TC = TFC

2) TC = TFC + TVC

3) AC = TC/Q

4) AFC = TFC/Q

5) AVC = TVC/Q

6) MC = TC_n - TC_n-1

At equilibrium, Price = MC & MC should be rising

Also, a firm in the competitive market will shut down if the price is less than the AVC. Since at Q=0, firm will incur loss equal to the TFC. Hence Price should at least cover TVC.

Here, lowest possible AVC is $96

but P = $75

hence P < AVC

=> multiplying by Q, we get;

P*Q < AVC*Q

=> TR < TVC => price will cover the variable cost.

Hence firm will shut down its production.

Hence Q* = 0