2. (18 pts.) Ball Bearings, Inc. operates in a perfectly competitive market and
ID: 1119817 • Letter: 2
Question
2. (18 pts.) Ball Bearings, Inc. operates in a perfectly competitive market and faces the following production costs uantity Total Fixed Costs Total Variable Costs $100 100 100 100 100 100 100 0 50 70 90 140 200 360 4 a. (8 pts.) Calculate the company's average fixed costs, average variable costs, average total costs, and marginal costs at each level of production b. (4 pts.) The price of a case of ball bearings is $50. Seeing that she can't make a profit, the CEO decides to shut down operations. What are the firm's profits/losses? Was this a wise decision? Explain 2. (cont'd) c. (6 pts.) Assuming all other firms face the same costs (perfect information), what transitions will occur in this market to achieve long-run equilibrium? Will the price rise or fall? Will the market quantity rise or fall? Will the quantity supplied by a single firm rise or fall? Show this result graphically by drawing the firm and the market side-by-sideExplanation / Answer
Ball Bearings, Inc. faces costs of production as follows
Quantity
[Q]
Total Fixed Costs
[TFC]
Total Variable Costs
[TVC]
Average fixed costs
[AFC=TFC/Q]
Average variable costs
[AVC=TVC/Q]
Average total costs
[ATC=AFC+AVC]
Marginal costs
[TVC2-TVC1/Q2-Q1]
0
$100
$0
-$100
-$100
1
$100
$50
$100
$50
$150
50-0/1-0=$50
2
$100
$70
$50
$35
$85
70-50/2-1=$20
3
$100
$90
$33.33
$30
$63.33
$20
4
$100
$140
$25
$35
$60
$50
5
$100
$200
$20
$40
$60
$60
6
$100
$360
$16.667
$60
$76.667
$160
Quantity
[Q]
Total Fixed Costs
[TFC]
Total Variable Costs
[TVC]
Average fixed costs
[AFC=TFC/Q]
Average variable costs
[AVC=TVC/Q]
Average total costs
[ATC=AFC+AVC]
Marginal costs
[TVC2-TVC1/Q2-Q1]
0
$100
$0
-$100
-$100
1
$100
$50
$100
$50
$150
50-0/1-0=$50
2
$100
$70
$50
$35
$85
70-50/2-1=$20
3
$100
$90
$33.33
$30
$63.33
$20
4
$100
$140
$25
$35
$60
$50
5
$100
$200
$20
$40
$60
$60
6
$100
$360
$16.667
$60
$76.667
$160
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