Bravo Pork Rinds Case Assume you are the plant manager for Bravo Pork Rinds, whi

Question

Bravo Pork Rinds Case

Assume you are the plant manager for Bravo Pork Rinds, which produces pork products in a market that approximates perfect competition. Due to a slow economy, business has been slow and you are losing money every month. The owners have asked you whether to continue operations or to shut down at least until the economy improves. You have the following information available:

Marginal Revenue (MR) = $105
Total Cost (TC) = $1,200 + 135Q - 0.6Q2
Marginal Cost (MC) = 135 - Q

As the plant manager, should you recommend to the owners that the plant be shut down for a while? Justify your answer using at least two techniques and presenting the information graphically.

Explanation / Answer

f you set MC= MR you get 105= 135-1.2Q so q=25

At a quantity of 25 revenues are 25*105= 2,625.

Unfortunately variable costs are 135 Q -0.6q^2= 3,000.

So since average variable cost (3,000/25=120) is greater than revenue 105, yes you need to shut down for a while.

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