Given the following Short Run Cost Table (all numbers are in dollars) for Joe’s
ID: 1200661 • Letter: G
Question
Given the following Short Run Cost Table (all numbers are in dollars) for Joe’s Widget Business, which is in a perfectly competitive market; answer all questions.
Q
Quantity of Output
TC
Total Cost
TVC
Total Variable Cost
ATC
Average Total Cost
MC
Marginal Cost
0
$30,000
no answer
no answer
1
$1,000
2
$3,000
3
$12,000
4
$41,000
5
$9,800
6
$12,000
a) Fill in all of the missing numbers above (fill in the blanks – note there are no numbers for ATC and MC when Q=0 – also round to the nearest cent).
b) State the Total Fixed Cost for this business.
c) At what unit of output does Joe’s Widget Business start to experience Diminishing Returns and state your reason for your answer?
d) If the market price is currently $5,000 per unit, what output would Joe produce in the short run in order to maximize its profits (or to minimize its losses). Clearly explain your answer.
e) Please explain clearly what Joe will do in the long run?
Q
Quantity of Output
TC
Total Cost
TVC
Total Variable Cost
ATC
Average Total Cost
MC
Marginal Cost
0
$30,000
no answer
no answer
1
$1,000
2
$3,000
3
$12,000
4
$41,000
5
$9,800
6
$12,000
Explanation / Answer
(a) Following is the complete table -
(b) Total fixed cost is the cost that have to be incurred even if total output produced is zero and it also remain same irrespective of the level of output produced. With respect to above table, total cost when 0 output is produced is $30,000. This is the total fixed cost because total fixed cost is the cost that have to be incurred even if total output produced is zero.
Thus, TFC for this business is $30,000.
(c) A firm experience diminishing returns when its average total cost increases as its output increases. In the given case, ATC is increasing as output increases from 5th to 6th unit.
So, at 6th unit of output, Joe's widget business start experiencing diminishing returns.
(d) Following is the required table -
In short-run, a firm maximizes its profit or minimizes its loss when it produces that level of output at which MR equal MC.
As above table shows, MR is equal to MC when 4 widgets are produced.
So, Joe must produce 4 widgets to maximize profit or minimize loss.
Q TC TFC TVC ATC MC 0 30,000 30,000 - - - 1 31,000 30,000 1,000 31,000 1,000 2 33,000 30,000 3,000 16,500 2,000 3 36,000 30,000 6,000 12,000 3,000 4 41,000 30,000 11,000 10,250 5,000 5 49,000 30,000 19,000 9,800 8,000 6 61,000 30,000 31,000 10,166.66 12,000Related Questions
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