This table provides information on costs and output per hour of a small business producing t-shirts....

This table provides information on costs and output per hour of a small business producing t-shirts. Assume these are all the costs of this business. Fill in the table and answer the related question:

# of workers	Output	Marginal Product	Total Cost	ATC	Variable costs	AVC	Marginal cost
0	0	---	60	---		---	---
1	10		140
2	25		245
3	42		347
4	60		473
5	77		609
6	92		753
7	107		903
8	120		1059
9	130		1199
10	137		1311

Suppose the market price of a t-shirt (marginal revenue) is $10. What is the profit maximizing output of this shop? What is the profit?
Would you predict entry or exit to happen in this industry in the long run? Write the word entry or exit only.
Find the shutdown point and the break-even point of this firm.
Now suppose that the price of a t-shirt decreases to $8. What is the profit maximizing level of output now? What is the profit? Should this firm continue producing or should it shut down?Find the shutdown point and the break-even point of this firm.
The fixed costs of this firm suddenly increase by $40 per hour. How does this change the initial (price=$10) profit maximizing output? What is the profit now?

Expert Solution

The formulas used

ATC=TC/Q, TC=FC+VC or VC = TC-FC, MC = Change in TC/Change in Q

TR=P*Q, MR=Change in TR/Change in Q. Profits = TR-TC, AVC = VC/Q

MP = Change in TP/Change in L

Shutdown point is min AVC.

Rahul Sunny answered 2 years ago

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