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Werner & Sons is a manufacturer of three-ring binders operating in a perfectly competitive industry
Werner & Sons is a manufacturer of three-ring binders operating in a perfectly competitive industry.
The table below shows the firm's cost schedule. Complete the table by filling in the blank cells.
| Quantity (cases) | Variable Cost | Total Cost | Marginal Cost | Average Variable Cost | Average Total Cost |
|---|---|---|---|---|---|
| 0 | $0 | $76 | |||
| 1 | $30 | $106 | |||
| 2 | $50 | ||||
| 3 | $134 | ||||
| 4 | $140 | ||||
| 5 | $160 | ||||
| 6 | $114 | ||||
| 7 | $150 | ||||
| 8 | $190 | ||||
| 9 | $316 |
Werner is selling in a perfectly competitive market at a price of $40. What is the profit-maximizing or loss-minimizing output
Expert Solution
| Quantity (cases) | Variable Cost | Total Cost | Marginal Cost | Average Variable Cost | Average Total Cost |
|---|---|---|---|---|---|
| 0 | $0 | $76 | |||
| 1 | $30 | $106 | $30 | $30 | $106 |
| 2 | $50 | $126 | $20 | $25 | $63 |
| 3 | $58 | $134 | $8 | $19.33 | $44.67 |
| 4 | $64 | $140 | $6 | $16 | $35 |
| 5 | $84 | $160 | $20 | $16.80 | $32 |
| 6 | $114 | $190 | $30 | $19 | $31.67 |
| 7 | $150 | $226 | $36 | $21.43 | $32.29 |
| 8 | $190 | $266 | $40 | $$23.75 | $33.25 |
| 9 | $240 | $316 | $50 | $26.67 | $35.11 |
How did we arrive on the missing costs to fill-in the table?
Variable Costs = Total Costs - Fixed Costs. The fixed cost here is $76.
Marginal Costs = Total Costs when producing 2 units - Total costs when producing 1 unit.
Average Variable Costs = Variable Costs / Total Units.
Average Total Costs = Total Costs / Total Units.
a. Setting P = MC and by looking at the table, the profit-maximizing output is 8 units.
b. Profit/loss = (P-ATC)*Q = (40-33.25)*8 = 6.75*8 = $54.
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