Question

Ball Bearings, Inc. faces costs of production as follows:
Quantity Total Fixed Costs Total Variable Costs
0 $100 $0
1 100 50
2 100 70
3 100 90
4 100 140
5 100 200
6 100 360
a) Calculate the company’s average fixed costs, average variable costs, average total costs, and marginal costs at each level of production.
b) The price of a case of ball bearing is $50. Seeing that she can’t make a profit, the chief Executive Officer (CEO) decides to shut down operations. What are the firm’s profits/losses? Was this a wise decision? Explain.
c) Vaguely remembering his introductory economics course, the Chief Financial Officers tells the CEO it is better to produce 1 case of ball bearings, because marginal revenue equals marginal cost at that quantity. What are the firm’s profits/losses at that level of production? Was this the best decision? Explain.

Answer 1

Answer:

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