Question

Price/Output Determination. Cold Case, Inc., produces beverage containers used by fast food franchises. This is a perfectly competitive market. The following relation exists between the firm's beverage container output per hour and total production costs:

Total

Output

Total

Cost

0

$ 35

1,000

85

2,000

145

3,000

215

4,000

295

5,000

385

6,000

485

7,000

610

A.

Construct a table showing the marginal cost of paper cup production.

B.

What is the minimum price necessary for the company to supply one thousand cups?

C.

How many cups would the company supply at industry prices of $75 and $100 per thousand?

Answer 1

a)

Marginal is the net addition to the total cost.

b)

The company has the minimum marginal cost of $50 when it produces 1000 cups. Since in perfect competition price equals marginal cost $50 is the minimum price.

c)

At Price of $75, it will supply 3000. Since when the company produces 3000 cups price is greater than MC. However, when it produces 4000, MC is 80 which is greater than the price which results in a loss.

At price of $100, it will produce 6000 cups as at this price the condition of P=MC is satisfied.