At a quantity of 265 units marginal revenue equals marginal cost. Fixed cost is $2,500, the Total Variable cost is $9,500, and the total revenue is $11,000.

At a quantity of 265 units marginal revenue equals marginal cost. Fixed cost is $2,500, the Total Variable cost is $9,500, and the total revenue is $11,000. Calculate the average fixed cost, average variable cost, average total cost and marginal revenue. Should the company shut down or stay in business in the short run? In the long run?

Solutions

Expert Solution

At a quantity of 265 units marginal revenue equals marginal cost.

Fixed cost is $2,500,

the Total Variable Cost is $9,500 and the Total Revenue is $11,000.

AFC=2500/265

=$9.433

AVC=9500/265

=$35.849

P=AR=MR=TR/Q

=11,000/265

=$41.50

Since Q=265 units,

AVC=$35.849

Shut-down condition is

P=MC=minimum of AVC

Since at this quantity total revenue is $11,000 and total variable cost is $9,500, so it means firm is able to cover even variable cost, so firm should continue to produce in the short-run but shut-down in the long-run because in the long-run all factors of production are variable.

Rahul Sunny answered 1 year ago

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