1. The following is a partial output and cost schedule for Kristin\'s Kwik-E-Mar

Question

1. The following is a partial output and cost schedule for Kristin's Kwik-E-Mart. Output is measured in number of Squishies, and costs are measured in dollars. Q TFC TVC AFC AVCATC 12 12 14 a) Using the definitions of TFC, TVC, TC, AFC, AVC, ATC, and MC, fill in the missing b) c) d) e) In the short run, would Kristin's Kwik-E-Mart shutdown or keep producing? Why blanks in the chart above. Graph the ATC, AVC and MC curves from part a). Make sure you label each curve and each axis If market price is P-11 per Squishy, draw the marginal revenue curve (MR) on the graph above. Would Kristin's Kwik-E-Mart be making positive profit, negative profit, or break even at P=11? f) In the long run, would Kristin's Kwik-E-Mart stay in or exit the industry? Why?

Explanation / Answer

a). TFC will remain the same for all levels of output.

AFC = TFC /Q

TVC = AVC * Q

ATC = TC/Q

and MC = Change in total cost / change in output

Here MC for Quantity level 2 = TC (2) - TC (0) / Q (2) - Q (0)

b and c - i am not able to upload the graph

d. At p = 11, Kristin's Kwik-E-Mart would maximize profit where MR =MC

There would be no breal even at P = 11 because for breakeven, AR = ATC where in this case AR>ATC

e). in the short run, Kristin's Kwik-E-Amrt should continue production as AR > AVC . The short-run shut down condition is AR = AVC

f). In the long run also, Kristin's Kwik-E-Amrt would stay in the market as P= MR=MC

No firm would enter or exit the market as long as P=MR=MC.

Q TFC TVC TC AFC AVC ATC MC 0 12 0 12 2 12 8 20 6 4 10 4 4 12 14 26 3 3.5 6.5 3 6 12 36 48 2 6 8 11

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