b. If the price of chicken wings drops to $2.00, how many chicken wings should b
ID: 2495391 • Letter: B
Question
b. If the price of chicken wings drops to $2.00, how many chicken wings should be produced then? Are you making profit above all costs at $2 chicken wings? • c. At what price would be the short-run breakeven point? At what price should the firm shut down?
Input (hours)
Output (wings)
MMP
TFC
TVC
TC
AFC
AVC
ATC
MC
25
118
250
212.50
462.50
2.1
1.8
3.9
6.7
1.3
35
185
250
297.50
547.50
1.4
1.6
3.0
5.7
1.5
45
242
250
382.50
632.50
1.0
1.6
2.6
5.1
1.7
55
293
250
467.50
717.50
0.9
1.6
2.4
3.8
2.2
65
331
250
552.50
802.50
0.8
1.7
2.4
2.9
2.9
75
360
250
637.50
887.5
0.7
1.8
2.5
Input (hours)
Output (wings)
MMP
TFC
TVC
TC
AFC
AVC
ATC
MC
25
118
250
212.50
462.50
2.1
1.8
3.9
6.7
1.3
35
185
250
297.50
547.50
1.4
1.6
3.0
5.7
1.5
45
242
250
382.50
632.50
1.0
1.6
2.6
5.1
1.7
55
293
250
467.50
717.50
0.9
1.6
2.4
3.8
2.2
65
331
250
552.50
802.50
0.8
1.7
2.4
2.9
2.9
75
360
250
637.50
887.5
0.7
1.8
2.5
Explanation / Answer
b)
Assuming a perfectly competitive firm, a firm produces till the point P=MC
Thus, when P=$2, total output should be 293 chicken wings, because at this point MC=$1.7, the closest to $2.
Increasing output beyond this point would make MC>P, pulling the firm to loss.
Yes, profits are being made, because here P>MC.
c)
Short run break-even point occurs where P=ATC, or TR=TC
It should shut down when P>AVC
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