Kate's Katering provides catered meals, and the catered meals industry is perfectly competitive. Kate's machinery costs $100 per day and is the only fixed input. Her variable cost is comprised of the wages paid to the cooks and the food ingredients.
The variable cost associated with each level of output is given in the accompanying table.
Qty. of Meals || VC
0...............|| $0
10.............|| $200
20.............|| $300
30.............|| $480
40.............|| $700
50.............|| $1000
a. Calculate the total cost, the average variable cost, the average total cost, and the marginal cost for each quantity of output.
Quantity of meals || FC || VC || TC || MC || AVC || ATC
0.....................||$100 || $0
10....................||100 || 200
20....................||100 || 300
30....................||100 || 480
40....................||100 || 700
50....................||100 ||1,000
b. What is the break-even price?
What is a 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?
Kate's Katering provides catered meals, and the catered meals industry is perfectly competitive. Kate's machinery costs $100 per day and is the only fixed input. Her variable cost is comprised of the wages paid to the cooks and the food ingredients.
The variable cost associated with each level of output is given in the accompanying table.
Qty. of Meals || VC
0...............|| $0
10.............|| $200
20.............|| $300
30.............|| $480
40.............|| $700
50.............|| $1000
a. Calculate the total cost, the average variable cost, the average total cost, and the marginal cost for each quantity of output.
Quantity of meals || FC || VC || TC || MC || AVC || ATC
0.....................||$100 || $0
10....................||100 || 200
20....................||100 || 300
30....................||100 || 480
40....................||100 || 700
50....................||100 ||1,000
b. What is the break-even price?
What is a 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?
Related textbook solutions
Related questions
Assume that a firm in a perfectly competitive market can sell its product for $35 (ie price per unit of output). Furthermore, it faces the following costs:
| Output (Q) | Total Cost |
| 0 | 25 |
| 1 | 50 |
| 2 | 100 |
| 3 | 120 |
| 4 | 155 |
| 5 | 190 |
| 6 | 250 |
| 7 | 390 |
a) Calculate Total revenue (TR), Marginal Cost (MC), Fixed Cost (FC), Variable cost (VC), and Average Cost (AC).
b) What is the profit-maximizing output level?
c) Is this firm is making a profit or loss at the profit-maximizing output level? Explain.
d) Do you think the firm will continue its production in the short run?
e) What will be the long-run price in this market?
