Karen runs a print shop that makes posters for large companies. It is a very com
ID: 1149672 • Letter: K
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 $1,800 for the first thousand posters, $1,500 for the second thousand, and then $900 for each additional thousand posters.
Instructions: Round your answers to 3 decimal places.
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 85 cents per poster, would there be any output level at which Karen would not shut down production immediately? (Click to select)NoYes.
Explanation / Answer
Since fixed costs do not vary with the quantity of output produced, thus total fixed cost (TFC) = $100.
Average fixed cost, AFC = TFC/Q
a) AFC for 1000 posters = 100/1000 = 0.1$
AFC for 2000 posters = 100/2000 = 0.05$
AFC for 10,000 posters = 100/10,000 = 0.01$
b) Total cost, TC = TFC + TVC
ATC for 1000 posters = TC/Q = (100+1800)/1000 = 1.9$
ATC for 2000 posters = TC/Q = (100+ 1500)/2000 = 0.8$
ATC 10,000 posters = (100+900)/10000 = 1000/10000 = 0.1$
c) If the market price fell to 0.85 per poster, Karen would produce somewhere between 1000 and 2000 posters (till the time price=avc)
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