Q VC TC AVC ATC VC Q MC 0 0 2000 -------------- -------------- -------------- --
ID: 1109563 • Letter: Q
Question
Q
VC
TC
AVC
ATC
VC
Q
MC
0
0
2000
--------------
--------------
--------------
--------------
--------------
248
800
2800
3.23
11.29
800
248
800
784
1,600
3600
2.04
4.59
800
536
800
1,416
2,400
4400
1.69
3.12
800
632
800
1,952
3,200
5200
1.7
2.66
800
536
800
2,200
4,000
6000
1.82
2.73
800
248
800
Using the information above:
2) For next week, capital has no sales contracted, but it gets a call offering $2 per item
a) Should it accept a contract at this price in the long run (beyond the end of the current kitchen lease)? If so, what output levels could be profitable in the long run? (Either to maximize profit or to minimize loss)?
b) Should it accept a contract at this price in the short run (just next week)? If so, what output levels could be desirable in the short run?
c) If accepting the contract is desirable, what is the optimal output level?
Q
VC
TC
AVC
ATC
VC
Q
MC
0
0
2000
--------------
--------------
--------------
--------------
--------------
248
800
2800
3.23
11.29
800
248
800
784
1,600
3600
2.04
4.59
800
536
800
1,416
2,400
4400
1.69
3.12
800
632
800
1,952
3,200
5200
1.7
2.66
800
536
800
2,200
4,000
6000
1.82
2.73
800
248
800
Explanation / Answer
Price=2
A) since price is less than min of ATC, firm will not produce in long run
B) Price>min of AVC, firm will produce in short run and Mc=change in TC/change in Q
And MC for Q=1952 is 1.49253
Thus Q=1.49253 is the quantity produced
C)contract should be accepted in short run and Q=1952
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