Question

41. A computer company produces affordable, easy-to use home computer systems and has fixed costs of $250. The marginal cost of producing computers is $700 for the first computer, $250 for the second, $300 for the third, $350 for the fourth, $400 for the fifth, $450 for the sixth, and $500 for the seventh.

a. Create a table that shows the company’s output, total cost, marginal cost, average cost, variable cost, and average variable cost.

b. At what price is the zero-profit point? At what price is the shutdown point?

c. If the company sells the computers for $500, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVC curves to illustrate your answer and show the profit or loss.

d. If the firm sells the computers for $300, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVC curves to illustrate your answer and show the profit or loss.

Answer 1

Output	Fixed cost	Variable cost	Total cost	AFC	AVC	AC	MC
1	250	700	950	250	700	950	700
2	250	950	1200	125	475	600	250
3	250	1250	1500	83.3	416.6	500	300
4	250	1600	1850	62.5	400	462.5	350
5	250	2000	2250	50	400	450	400
6	250	2450	2700	41.6	408.3	450	450
7	250	2950	3200	35.7	421.4	457.1	500

b.Profits are zero qhen average costs and marginal costs are equal.This is at output=6units.

c.If a firm is selling laptop at $500,he is incurring loss because it is not even able to cover the average variable costs.

For 0 units,FC=250 so TC=250.