Chapter 1. Section 9, Problem 2

Step 1

Work It Out
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You must read each slide, and complete any questions on the slide, in sequence.

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 $IcL9bpAkHWLutWG+ - - -
10 200 iCuw6JoLncG2f/tV $dQVKDJBhwzJmZ379 $dQVKDJBhwzJmZ379 $+jCX9p9XH9knaIJ4
20 300 u+FUjnAx84HJ31uu 4U+xKJkDI5y/B1aa RY0pXTrRFsxe83B2 dQVKDJBhwzJmZ379
30 480 06N+DajKSS3ttwpE RDUYhv1gmcdcOHQz rHnpCyqtSSkVw6HF N8LiRUx3IDkkjxeO
40 700 yJ2/qd3x+Gb0s9XA tfLNk9X3u+HHagUS DO1Ywzza9dXo99LO dQVKDJBhwzJmZ379
50 1,000 LRoqMwVzmAceclZN7TeiFw8JUnw= +jCX9p9XH9knaIJ4 dQVKDJBhwzJmZ379 tfLNk9X3u+HHagUS
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: $N8LiRUx3IDkkjxeO

Shut-down price: $RY0pXTrRFsxe83B2

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
axOtuhE5uanTvo6inVQjQtoBq16G5GrWLRokORCJvIDmUzh9psft+OFOUoRcnolpWiISxcoacYTYyh9AO9mmq19lrv+16YoFGZwT0ik9rMNpORUjCGrcE0XrvYySp7vF5gVWOzuoXoxlbAkn1p+ci9ZbaR7Bzxcaa2Wkwm63B4GvDLedk1eoesEMtD8sG9aF9CP+NVIQcl/qiuB6Ss5+mR4HKlx1Oa7cVEiFHcBVENGru5QV/2OpbfoN7Sgo+9TpmS/l56iLkttuBaKme6z0qVu+62saTK9HsGLbqHZ8Jx0I1hxlXSyXuBDEyhVi7y5g/OXPpJt/p23dJqlblz7uqsfObBhBnVezp3GsBXisPC0qE/LRw9KrQrDN1kSdUUU1n0yh7I79QxD1CZM7vYgAfj2w/CvYHNkWEGDPQZ8IskaUXkasCKd2K5s1RpWINZ89ktcSlG9v/PVgDoJzCu8ImNoBBxHSzA1mhL54dRoi2LLNUe5VWcYvA/mDXn0jGActJeQGQKLR+AvGpfK+3Mo1IUzt87DMg47WQ1LA1RbcnpjDAUn5fvYT8uUNrEzLkDT1WkActwxoIeu+HvVtczYsf06WHCK3hWsqcqXMVXI2KwvOsN+ryD0xl4lJTnYHDDzLLTQKu2n3RU3e1Ps8sK3Ka9TCCiuwgmce+Buvm+0+ClwKmEHElzaN2MSfYueyD7wsuoWTGp22dCCJnKvojsWz6WAs92uQr6TZKozY2UE9zLl9yW8VRpV5+rwwR7MLBjI+4ohNagLdb0t5j54E7wapHiZdeROO8q3Qhl2K7NgQ/ZUfQmNg62XtEL2JbCHG2S0dyFka0vAOaMpieFm0qX2pqPBZ35JQS17nk22egmQzcarua6ZUjKVJc+fG8DxGUH+4k/w+fLSEqbcBVS1BzdilZhZhArM/vILPrwaHSREtFGoFWxq+1utIzKAXi94xlD5MmJK6fcU1ynDyVlR5sSgbwDImyplTyzFt3Od8CtW6v8NyxIhU+3s87f5NtuOq+mFUjdAM082iAuPn9UnwXJzq3w6724IUgJdT63245SKyFkQbMKP5znROP2sAAWzk47U8NyYE7uwx0RPfhKo/PYGuW5RtJxkRhNgmMU2RJ4nAvElXSKY2H8yKw1j8YdJS4KoYqb5athBXXA7dtkY6ZgJ0hwSExDD+3hgt8DPqS+cag2beeqL7eG5BaaeRfC2tgziBa7rRqMWyjLtJ6yg6T6PpYW2M/a8xINjcoxqU5MVrSLvFVZGqbgnHyE9gARtFp++WpES2BC0EF8JpfShiSKreTeqde8AFGUeQBVrtjngBwo7p7sMwnhrv93Vxl6fqstdb/K2V0KY5fFMd+t55SJUA1FfIehMpbRtAw5imo+fFAEz1D/JvR4IzFzDJr1KzyFunR8f8Hn7/4uzTAE+r6M1WWHrnq5cPqWK/l1B7BmqZSLkLRKmuZrl6lk1AYEQV3Kk8wuis7ZJgAUZHvpTj4CbKEQT6N0ZKvcdkLB5/5VEFa1FqBryI+R6gCFd1XR5T4RfYnO0xxsJzd3IeOJTLTbrdOavsO70fxEWs50WBzSH6fZGAnHvlkNlTsXAeOKcZLbS3TnXwjldkZbscWzgqi+qbRhLAppOuExMddpvQPUDTe95cxA+9WLHGV1bLNh9N68cUH+Hmitp4m+xPavWXap2niUtq/ESN8L7cAsF4qACl+bMHdlC62XFqpelHt+utpsTTJpDIfjYGHLqbgjXhhSK+UB9YQmbCUs7c
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
0:32