Question

Karen runs a print shop that makes posters for large companies. It is a very competitive business. The market price is currently $1 per poster. She has fixed costs of $100. Her variable costs are $1,800 for the first thousand posters, $1,500 for the second thousand, and then $900 for each additional thousand posters.

Instructions: Round your answers to 3 decimal places.

a. What is her AFC per poster (not per thousand!) if she prints 1,000 posters? $.      

What if she prints 2,000 posters? $.      

What if she prints 10,000 posters? $.

b. What is her ATC per poster if she prints 1,000? $.      

What if she prints 2,000? $.      

What if she prints 10,000? $.

Answer 1

Fixed cost =$100

Average fixed cost per poster if she print 1000 posters.

=FC/ numbers of posters

=100/1000

=$0.1

Hence AFC is $0.1 per poster.

If 2000 poster is printed

AFC=100/2000

=$0.05

If Karen print 10000 posters

AFC=100/10000

=$0.01

(B)

TC= FC+VC

When she produce 1000 unit of posters

TC=100+1800

=1900

ATC=TC/Q

ATC=1900/1000

=$1.9

When Q=2000

VC for first 1000 unit is 1800 and for second it is 1500

TC=100+1800+1500

TC=3400

ATC=3400/2000

=$1.7

If Q=10000

VC from 2000 unit to 10000, increases by 900 per next 1000 unit.

TC=100+1800+1500+8*900

=3400+7200

=10,600

ATC=10,600/10000

ATC=$1.06