Given the following Short Run Cost Table (all numbers are in dollars) for Joe’s
ID: 1200160 • Letter: G
Question
Given the following Short Run Cost Table (all numbers are in dollars) for Joe’s Widget Business, which is in a perfectly competitive market; answer all questions.
Q
Quantity of Output
TC
Total Cost
TVC
Total Variable Cost
ATC
Average Total Cost
MC
Marginal Cost
0
$30,000
no answer
no answer
1
$1,000
2
$3,000
3
$12,000
4
$41,000
5
$9,800
6
$12,000
a) Fill in all of the missing numbers above (fill in the blanks – note there are no numbers for ATC and MC when Q=0 – also round to the nearest cent).
b) State the Total Fixed Cost for this business.
c) At what unit of output does Joe’s Widget Business start to experience Diminishing Returns and state your reason for your answer?
d) If the market price is currently $5,000 per unit, what output would Joe produce in the short run in order to maximize its profits (or to minimize its losses). Clearly explain your answer.
e) Please explain clearly what Joe will do in the long run?
Q
Quantity of Output
TC
Total Cost
TVC
Total Variable Cost
ATC
Average Total Cost
MC
Marginal Cost
0
$30,000
no answer
no answer
1
$1,000
2
$3,000
3
$12,000
4
$41,000
5
$9,800
6
$12,000
Explanation / Answer
a.
b. total fixed cost to the business is $30,000
c. at 6th unit it started to get diminishing returns, because the proportionate of variable cost has been increasing drastically.
d. if market price is $5000 per unit, it gets losses only. but the minimum loss will be gets at unit 3 and unit 4. he needs to run the business in short run. because if he stops running business he will pay the fixed cost of $30000, but if he runs the loss will be $21000
e. no, it is better to exit from the business in long run.
output total cost total variable cost average total cost marginal cost 0 30000 0 30000 0 1 31000 1000 31000 1000 2 33000 3000 16500 2000 3 36000 6000 12000 3000 4 41000 10000 10250 5000 5 49000 19000 9800 8000 6 61000 31000 10167 12000Related Questions
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