Karen runs a print shop that makes posters for large companies. Its is a very co

Question

Karen runs a print shop that makes posters for large companies. Its is a very competitive business. The market price is currently $1 per poster. She has fixed cost of $250. Her variable cost are $1000 for the first thousand posters, $800 for te second thousand, and then $750 for each additionl thousand posters. What is the ATC per poster(not per thousand) if she prints 1000 posters? 2000? 10,000? What is her ATC per poster if she prints 1000, 2000, 10,000? If te market price fell to 70 cents(0.70) per poster, would there be any output level at which Karen would not shut down production immediately?

Explanation / Answer

ATC=(FC+VC)/Q for 1000 prints its (250+1000)/1000=1.25 each for 2000 prints its (250+1000+800)/2000=1.025 each for 10,000 prints its (250+1000+800+(750*8))/10,000=0.805 each If the market price fell to 0.70 she would not want to produce more than 13,000 prints. This is the point where as she produces more, lets say 14000, the cost starts to rise. After this point she would want to shut down right away. Hope this helps

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