Question

This activity will give a practical application of marginal analysis.

A 2017 Platteville grad inherited her mother’s company. The capital stock of the firm consists of three machines of various vintages, all in excellent condition. All machines can be running at the same time.

	Cost of Printing and binding per book	Maximum Total capacity (books) per month
Machine 1	$4	100
Machine 2	$5	200
Machine 3	$6	200

1. Assume the cost of printing and binding the book includes all labor and materials, including the owner’s wages. Assume further that Mom signed a long-term contract (50 years) with a service company to keep the machines in good repair for a fixed fee of $150 per month.

a. Derive the marginal cost curve.

b. Derive the firm’s total cost curve.

2. At a price of $5.50, how many books would the company produce? Determine total revenue, total cost, and total profits?

Answer 1