Question

A furniture company produces and sells 100 tables for $120 each. It has average fixed costs...

A furniture company produces and sells 100 tables for $120 each. It has average fixed costs of $50 and average variable costs of $35 at this production level.

a) Calculate the company’s total cost, total revenue, total fixed cost, total variable cost and total profit.

b) Is this company earning economic profit? Explain your answer and also highlight the difference between short run and long run.

c) What is the most likely shape of marginal cost curve for a company making furniture?

Business   Economics   
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Answer #1

Given AFC=50 and AVC=35, Q=100 , P=120

a) Total cost = total fixed cost + total variable cost

Average fixed cost = TFC/Q

TFC = AFC*Q = 50*100= 5000

TVC= AVC*Q = 35*100 = 3500

TC= 8500

Total revenue TR = P*Q= 120*100 = 12000

Profit = TR-TC = 12000- 8500 = 3600

b) The company is earning positive profits. In short run there are variable and fixed costs involved while in long run all costs are variable costs.

c) Marginal cost is the additional cost of employing an additional unit of variable factor in production. It will be constant for company making furniture.

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