Posted by **ann** on Friday, February 4, 2011 at 1:26pm.

Redstone Clayworks, Inc. is located in Sedona, Arizona and manufactures clay fire pits for patios. They are one of about two dozen firms around the world that manufacture and sell clay fire pits for retailers such as Home Depot, Lowe’s, Front Gate, and other upscale home product chains. There is virtually no product differentiation; a clay fire pit is a clay fire pit.

The spreadsheet below gives some of Redstone’s production cost data. Enter this data in your own Excel spreadsheet. (Remember our discussion of Smith Farms in the Attend session!) Add columns 5, 6, 7, and 8 to show, respectively, average fixed cost (AFC), average variable cost (AVC), average total cost (ATC), and short-run marginal cost (SMC). You will send me the spreadsheet via the Drop Box. Don’t send it yet, however, because you will need to add more columns, as explained below.

(1) (2) (3) (4)

Q TC TFC TVC

0 5000 5000 0

100 10000 5000 5000

200 19000 5000 14000

300 27000 5000 22000

400 38000 5000 33000

500 50000 5000 45000

600 66000 5000 61000

700 84000 5000 79000

800 104000 5000 99000

900 126000 5000 121000

1000 150000 5000 145000

The world market demand and supply curves for clay fire pots intersects at $190 per unit. Add columns 9, and 10 to show, respectively, total revenue (TR) and marginal revenue (MR). Add column 11 to show profit (i.e., TR-TC). Add column 12 to show profit per unit (i.e., average profit). Add column 13 to show profit margin (i.e., price minus average total cost).

Submit your Excel spreadsheet to the Drop Box. [Hint: At Q = 400: AVC = 82.50, SMC = 110, MR = 190, profit = 38,000, and profit margin = 95].

type here 1. If Redstone wanted to minimize average total cost, it would produce how many units?

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