a. Calculate the total cost, the average variable cost, the aver-age total cost, and the marginal cost for each quantity of output.
b. What is the break-even price? What is the shut-down price?
c. Suppose that the price at which Kate can sell catered meals is $21 per meal. In the short run, will Kate earn a profit? In the short run, should she produce or shut down?
d. Suppose that the price at which Kate can sell catered meals is $17 per meal. In the short run, will Kate earn a profit? In the short run, should she produce or shut down?
e. Suppose that the price at which Kate can sell catered meals is $13 per meal. In the short run, will Kate earn a profit? In the short run, should she produce or shut down?
To calculate the total cost, average variable cost, average total cost, and marginal cost for each quantity of output, you will need some information such as the quantity of output and the costs involved in producing that output.
a. Total Cost:
To calculate the total cost, you need to add up all the costs involved in producing the given quantity of output. This includes both fixed costs (costs that do not change with the quantity produced) and variable costs (costs that do change with the quantity produced). The formula for total cost is:
Total Cost = Fixed Cost + Variable Cost
Average Variable Cost (AVC):
To calculate the average variable cost, divide the total variable cost (costs that vary with the level of output) by the quantity of output. The formula for average variable cost is:
AVC = Variable Cost / Quantity of Output
Average Total Cost (ATC):
To calculate the average total cost, divide the total cost (fixed and variable) by the quantity of output. The formula for average total cost is:
ATC = Total Cost / Quantity of Output
Marginal Cost (MC):
To calculate the marginal cost, you need to determine the increase in total cost that arises from producing an additional unit of output. The formula for marginal cost is:
MC = Change in Total Cost / Change in Quantity of Output
b. Break-even price:
The break-even price is the price at which the total revenue equals the total cost, resulting in zero profit or loss. To calculate the break-even price, you need to set the total revenue equal to the total cost and solve for the price.
Shut-down price:
The shut-down price is the minimum price at which the firm should continue operations in the short run, given that it incurs losses. It is typically equal to the minimum average variable cost. If the price falls below this level, the firm should shut down to minimize losses.
c. In the short run, if the price at which Kate can sell catered meals is $21 per meal, she should determine if she will earn a profit. Kate can compare the price per meal with her average total cost per meal. If the price per meal is higher than the average total cost per meal, she will earn a profit. Based on this comparison, she should decide whether to produce or shut down. If the price is higher than the average total cost, she should produce. Otherwise, shutting down would be more profitable.
d. Similarly, in the short run, if the price at which Kate can sell catered meals is $17 per meal, she should compare the price with her average total cost per meal. If the price per meal is higher than the average total cost per meal, she will earn a profit. If the price is lower than the average total cost, she should consider shutting down to minimize losses.
e. Likewise, in the short run, if the price at which Kate can sell catered meals is $13 per meal, she should compare the price with her average total cost per meal. If the price per meal is higher than the average total cost per meal, she will earn a profit. If the price is lower than the average total cost, she should determine whether shutting down would minimize her losses.