Karen runs a print shop that makes posters for large companies. It is a very com

Question

Karen runs a print shop that makes posters for large companies. It is a very competitive business. The market price is currently $1 per poster. She has fixed costs of $100. Her variable costs are $1,500 for the first thousand posters, $1,200 for the second thousand, and then $800 for each additional thousand posters.

a. What is her AFC per poster (not per thousand!) if she prints 1,000 posters? $.      

What if she prints 2,000 posters? $.      

What if she prints 10,000 posters? $.

b. What is her ATC per poster if she prints 1,000? $.      

What if she prints 2,000? $.      

What if she prints 10,000? $.

c. If the market price fell to 75 cents per poster, would there be any output level at which Karen would not shut down production immediately?   (Click to select)YesNo.

Explanation / Answer

a) AFC = TFC / Q

If she prints 1,000 posters

AFC = $100 / 1000 = $0.10

If she prints 2,000 posters

AFC = $100 / 2000 = $0.05

If she prints 10,000 posters

AFC = $100 / 10,000 = $0.01

b) ATC = (TFC + TVC) / Q

If she prints 1,000 posters

ATC = (100 + 1500) / 1000 = $1.60

If she prints 2,000 posters

ATC = (100 + 1500 + 1200) / 2000 = $1.40

If she prints 10,000 posters

ATC = (100 + 1500 + 1200 + 6400) / 10,000 = $0.92

c) Ans: No

Explanation:

For all levels of output AVC is greater than $0.75. So, Karen has to Shut down.

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