Question

Your firm prints the novelty baseball cards that candy makers include in their bubblegum. Since you regularly sell 100,000 cards per week, you invested in four separate production lines that can each produce 25,000 cards in a standard 40 hour work week. Now a few of the candy makers are signed long term contract that will increase their orders so that you will need to produce 150,000 cards per week. If you can invest in two new production lines at the same cost as your previous four, what does this imply for the shape of your long-run marginal cost curve? What does it imply for changes in your pricing?

Answer 1

Because new production is established so there is no excess production in existing production lines and marginal cost in long run will be same for all the production. If production was increased on already established production lines then marginal cost will be increasing and also slope of MC have to be increasing, but here due to new production lines MC curve will be parallel to horizontal axis. Fixed cost have changed here but variable cost per unit will be same and MC is determined by variable costs so MC will be parallel to horizontal.

It does not change the pricing because marginal cost remains same.

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