Question

1. Madeline makes straw baskets in the perfectly competitive basket market in Charleston, South Carolina.The table below illustrates her cost of production.

Complete the table showing Madeline’s average total cost (ATC), average variable cost (AVC), and marginal cost (MC).

a) Suppose the equilibrium price in the straw basket market is $25.

b) How many straw baskets should Madeline produce?

c) At this price, will Madeline earn positive or negative economic profits?

d) If next week the equilibrium price of straw baskets drops to $15, should Madeline shut down? Explain.

e) If Madeline shuts down in the short run, how much money would she lose, if any?

	Output per day	TC	ATC	AVC	MC
	0	50.00
	1	75.00
	2	87.50
	3	95.00
	4	105.00
	5	120.00
	6	140.00
	7	165.00
	8	195.00
	9	230.00
	10	270.00

Answer 1