Question

The cost data in the following table are for Marshall’s Meats, a perfectly competitive firm.

Round your answers to 2 decimal places.

Output Average Variable Cost Average

Total Cost Marginal

Cost Total Cost

0 / / / $ 95

1 $ $ $ 115

2 125

3 150

4 200

5 270

6 350

7 450

a. Complete above the table.

b. What is the break-even price?

Break-even price: $   

c. What is the shutdown price?

Shutdown price: $   

d. If the market price of the product is $50, what quantity will Marshall’s Meats produce? What will be its profit or loss?

  

Quantity: ; : $

e. If the market price of the product is $100, what quantity will Marshall’s Meats produce? What will be its profit or loss?

Quantity: ; : $   

Answer 1

a)

b) The break-even price is where ATC is minimum. So, the the break-even price is $50.00.

c) The shutdown price is where AVC is minimum. So, the the break-even price is $18.33.

d) The profit maximization condition under perfect condition is P = MC. If the market price of the product is $50, the quantity that Marshall’s Meats produce is 4.

TR = P * Q = $50 * 4 = $200

TC = $200

Profit = TR - TC = 200 - 200 = $0

e) If the market price of the product is $100, the quantity that Marshall’s Meats produce is 7.

TR = P * Q = $100 * 7 = $700

TC = $450

Profit = TR - TC = 700 - 450 = $250