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Homework answers / question archive /  Teacher’s Helper, Inc

 Teacher’s Helper, Inc

Accounting

 Teacher’s Helper, Inc. (THInk) is a small company that produces instructional materials
for the New York City public schools. It has rented several rooms in an office building for
$600 a month, and has leased specialized computers for $480 a month, from SoftyWare.
Both are necessary for production. The table below shows the total variable costs for each
unit of output. (The blank columns are for your calculations, as needed.) Based on an.
exam question.
Output | Total
(modules} Variable
Costs
a
Po
Poa | 550 |
po
P 2 | wooo | CC
po
RD
a es
a
a ee
a 2 ss
pT
| 6 [| 300 | fT
a ee ee
| 7 [| 370 | OT
pT
a

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Output (modules) Total Variable Fixed Cost (b)

Total Cost

(c = a+b)

ATC 

(c/Output)

AVC

(a/Output)

MC 

(Change in Total Cost/

Change in Total Output)

  
Costs (a)
0   1080 1080        
               
1 550 1080 1630 1630 550 550  
               
2 1000 1080 2080 1040 500 450  
               
3 1400 1080 2480 826.67 466.67 400  
               
4 1850 1080 2930 732.5 462.5 450  
               
5 2400 1080 3480 696 480 550  
               
6 3000 1080 4080 680 500 600  
               
7 3700 1080 4780 682.8 528.57 700  
               
8 4500 1080 5580 697.5 562.5 800  

a) THInk will increase output as long as Marginal cost is smaller than or equal to price to maximize profit (or minimize loss). In this case, MC($600)<Price (625) at output level of 6 units and MC($700)>Price ($625) at a output of 7 units. So, optimal output is 6 units.

Hence, THInk should produce 6 modules.

 

2) We can see that marginal cost of producing 7th unit of module is $700. So, THInk should charge a minimum of $700 for the 7th unit as charging a price of less than $700 will reduce the profit of firm.

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