Chapter 1. Chapter 12

Step 1

Work It Out
Work It Out
Chapter 12
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Question

Kate’s Katering provides catered meals, and the catered meals industry is perfectly competitive. Kate’s machinery costs $100 per day and is the only fixed input. Her variable cost consists of the wages paid to the cooks and the food ingredients. The variable cost per day associated with each level of output is given in the accompanying table.

Quantity of Meals VC
0 $0
10 200
20 300
30 480
40 700
50 1,000
Table

Calculate the total cost, the average variable cost, the average total cost, and the marginal cost for each quantity of output. (Include two decimals in your answers.)

Quantity of Meals VC TC of meal MC of meal AVC of meal ATC of meal
0 $0 $P2qpbTSY15s7yxtq5HBjtNXsLKciZJnI - - -
10 200 8iq3fv+H13DRqAzERxPkksXD76AOIE1g $vShCWESehUTUKKSrf+a7B73nL4smb8ZJ $vShCWESehUTUKKSrf+a7B73nL4smb8ZJ $MYD8HYRl26zqDmAnSIrJievfM7434i8R
20 300 NQJOgotI6hDHtOdYTPY3WPS0Z5fv6Yos YisYK9nrHZsl/uFqSRTSJsvor4G0BPA/ qdON7pSS3t8xrEOfRxEIQPHFXk1UmyEw vShCWESehUTUKKSrf+a7B73nL4smb8ZJ
30 480 jOZZhSPGNh0dQdKlLSC+TB76HjKcXfeJ FnIOdNsdWzGlCqDj/GRQNuF6FbbRWOag RSZkmsGGPOpsVZfhR5MYoWHXgS3nqTDM sm8IDRXz6pSyXmi3njCJ/3FWCQ55JheX
40 700 aupMmyqeN/ypT84F2IoPHpPC971EQpJr Yoy57Uxbvs0ulOSYjGhz4JzR6XqNhWVN Fgewl9+9V++Vh8ycxQNT/70eW0zrxCrx vShCWESehUTUKKSrf+a7B73nL4smb8ZJ
50 1,000 MNACUMXpykPiSBGh5/9KaxYEUeNBl3qmOYG0tgbTh4DqX/Wg MYD8HYRl26zqDmAnSIrJievfM7434i8R vShCWESehUTUKKSrf+a7B73nL4smb8ZJ Yoy57Uxbvs0ulOSYjGhz4JzR6XqNhWVN
Table
To find total cost, for each level of output add the fixed costs of $100 to variable costs. Marginal cost is calculated as ΔTC/ΔQ. As the quantity of meals increases from 0 to 10, total costs increase from $100 to $300, so marginal costs are ($300 - $100)/($10 - 0) = $20.00. For this problem the change in quantity will be 10. Both AVC and ATC are calculated by dividing VC and TC by quantity at each level of output, respectively. For further review see section, “Using Marginal Analysis to Choose the Profit-Maximizing Quantity of Output.”
Calculate the total cost, the average variable cost, the average total cost, and the marginal cost for each quantity of output. (Include two decimals in your answers.)
3:51

Step 2

Question

Quantity of Meals VC TC of meal MC of meal AVC of meal ATC of meal
0 $0 100.00 -- -- --
10 200 300.00 $20.00 $20.00 $30.00
20 300 400.00 10.00 15.00 20.00
30 480 580.00 18.00 16.00 19.33
40 700 800.00 22.00 17.50 20.00
50 1,000 1,100.00 30.00 20.00 22.00
Table

Using the table from your answer in the last part; what is the break-even price? What is the shut-down price? (Round your answer to two decimal places.)

Break-even price: $2Q25w5BeoAh371e0KJRtfQ==

Shut-down price: $w7JoiU7NfhYZduRtpw4/lQ==

Correct! For further review see, “The Short-Run Production Decision.“
Incorrect. The break-even price is also the point that corresponds with the minimum average variable cost. The minimum average total cost occurs at 30 meals with a price of $19.33. The shut-down price is also the minimum average variable cost; any price below this point will cause the firm to lose money in their daily operations. For Kate, her shut-down price occurs at an output of 20 meals and a price of $15.00. For further review see, “The Short-Run Production Decision."
Using the table from your answer in the last part; what is the break-even price? What is the shut-down price? (Round your answer to two decimal places.)
1:02

Step 3

Question

Quantity of Meals VC TC of meal MC of meal AVC of meal ATC of meal
0 $0 $100.00 -- -- --
10 200 300.00 $20.00 $20.00 $30.00
20 300 400.00 10.00 15.00 20.00
30 480 580.00 18.00 16.00 19.33
40 700 800.00 22.00 17.50 20.00
50 1,000 1,100.00 30.00 20.00 22.00
Table
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
0:46

Step 4

Question

Quantity of Meals VC TC of meal MC of meal AVC of meal ATC of meal
0 $0 $100.00 -- -- --
10 200 300.00 $20.00 $20.00 $30.00
20 300 400.00 10.00 15.00 20.00
30 480 580.00 18.00 16.00 19.33
40 700 800.00 22.00 17.50 20.00
50 1,000 1,100.00 30.00 20.00 22.00
Table

Suppose that the price at which Kate can sell catered meals is $18 per meal. In the short run, Kate should produce udX0h74V+w0= meals. Kate should (shut down or produce) ppqas7N66p6hZwn7/2BST57EDozEgyDr in the short-run and (shut down or produce) TeajFIPSX1J7In5MFmV+bNO8JCGgTr5c in the long run

Correct! For further review see, “The Short-Run Production Decision."
Incorrect. When the price is $18, Kate will incur a loss: the price is below her break-even price of $19.33. But since the price is above her shut-down price of $15.00, Kate should produce in the short run, not shut down. For further review see, “The Short-Run Production Decision."
Suppose that the price at which Kate can sell catered meals is $18 per meal. In the short run, Kate should produce _______ meals. Kate should (shut down or produce) _______ in the short-run and (shut down or produce) _______ in the long run
0:41

Step 5

Question

Quantity of Meals VC TC of meal MC of meal AVC of meal ATC of meal
0 $0 $100.00 -- -- --
10 200 300.00 $20.00 $20.00 $30.00
20 300 400.00 10.00 15.00 20.00
30 480 580.00 18.00 16.00 19.33
40 700 800.00 22.00 17.50 20.00
50 1,000 1,100.00 30.00 20.00 22.00
Table

Suppose that the price at which Kate can sell catered meals is $13 per meal. In the short run, Kate should produce 1Wh3cvJ2xF4= meals. Kate should (shut down or produce) TeajFIPSX1J7In5MFmV+bNO8JCGgTr5c in the short-run and (shut down or produce) TeajFIPSX1J7In5MFmV+bNO8JCGgTr5c in the long run

Correct! For further review see, “The Short-Run Production Decision."
Incorrect. When the price is $13, Kate would incur a loss if she were to produce: the price is below her break-even price of $19.33. And since the price is also below her shut-down price of $15.00 she should shut down in the short run. For further review see, “The Short-Run Production Decision>"
Suppose that the price at which Kate can sell catered meals is $13 per meal. In the short run, Kate should produce ______ meals. Kate should (shut down or produce) ______ in the short-run and (shut down or produce) ______ in the long run
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