2. (Table: Marie\'s Textbook Company) Marie has a small publishing company that

Question

2.

(Table: Marie's Textbook Company) Marie has a small publishing company that produces textbooks. She has fixed costs of $1800 per month and hires workers (assume the only thing necessary to produce more books is to hire more labor) for $2,000 per month. The table shows Marie's monthly production function. With as much precision as possible, calculate the following:

a) total cost of production when four workers are employed
b) the output level that produces the lowest average total cost
c) the price that Marie must charge in order to break even on the production of 130 textbooks

Marie's Textbook Company Quantity of Labor (Workers) Quantity of Textbooks 0 0 1 20 2 80 3 130 4 170 5 200 6 220

Explanation / Answer

ANSWER:

1) When four workers are employed, Marie has VC = 4 * $2,000 = $8,000, plus FC = $1800, for a total of $9,800.

2) Average total cost is equal to $58 at output levels of 130 and 170 textbooks. Thus between 130 and 170, the ATC would have reached a minimum value before beginning to increase

3) At 130 textbooks, total cost amounts to $7,54000. To break even, 130P must equal $7,540, thus Marie should charge $58 per textbook

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