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The table shows output and cost data
The table shows output and cost data. Calculate the average total cost, average fixed cost, average variable cost, and marginal cost schedules. If the market price were $500, should the firm shut down in the short run? In the long run?
| Quantity | 0 | 5 | 10 | 15 | 20 | 25 | 30 | 35 |
| Total Cost | $20,000 | $20,500 | $20,975 | $21,425 | $21,850 | $22,300 | $22,775 | $23,275 |
Expert Solution
The table below shows the average total cost, average variable cost, average fixed cost, and marginal cost schedules.
| Quantity | 0 | 5 | 10 | 15 | 20 | 25 | 30 | 35 |
|---|---|---|---|---|---|---|---|---|
| Total Cost | $20,000 | $20,500 | $20,975 | $21,425 | $21,850 | $22,300 | $22,775 | $23,275 |
| FC | 20,000 | 20,000.00 | 20,000.00 | 20,000.00 | 20,000.00 | 20,000.00 | 20,000.00 | 20,000.00 |
| VC=TC-FC | $0 | 500.00 | 975.00 | 1,425.00 | 1,850.00 | 2,300.00 | 2,775.00 | 3,275.00 |
| MC | 0 | 500.00 | 475.00 | 450.00 | 425.00 | 450.00 | 475.00 | 500.00 |
| ATC=TC/Q | - | 4,100.00 | 2,097.50 | 1,428.33 | 1,092.50 | 892.00 | 759.17 | 665.00 |
| AFC=FC/Q | - | 4,000.00 | 2,000.00 | 1,333.33 | 1,000.00 | 800.00 | 666.67 | 571.43 |
| AVC=VC/Q | - | 100.00 | 97.50 | 95.00 | 92.50 | 92.00 | 92.50 | 93.57 |
| P | 500.00 | 500.00 | 500.00 | 500.00 | 500.00 | 500.00 | 500.00 | 500.00 |
In the short run, the firm should not shut down since the market price is greater than the average variable cost (P>AVC) at each level of output.
In the long run, the firm should exit the market since the market price is less than the average total cost (P<ATC) at each level of production.
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