Question

Karen runs a print shop that makes posters for large companies. It is a very competitive business. The market price is currently $1 per poster. She has fixed costs of $100. Her variable costs are $1.800 for the first thousand posters, $1,500 for the second thousand, and then $900 for each additional thousand posters. Instructions: Round your answers to 3 decimal places a. What is her AFC per poster (not per thousand!) if she prints 1.000 posters? What if she prints 2.000 posters? What if she prints 10.000 posters? b. What Is her ATC per poster if she prints 1,000? What if she prints 2,000? What if she prints 10.000? c. If the market price fell to 85 cents per poster, would there be any output level at which Karen would not shut down production Immediately? [click to selec

Answer 1

FC= 100

a. when output =1000

AFC = 100 / 1000 = 0.1

When output = 2000

AFC = 100 / 2000 = 0.05

when output =10000

AFC = 100 / 10000 = 0.01

b. when output =1000

TC = 100 + 1800 = 1900

ATC = 1900 / 1000 = 1.9

when output =2000

TC = 100 + 1800 + 1500 = 3400

ATC = 3400 / 2000 = 1.7

when output =10000

TC = 100 + 1800 + 1500 + 900 * 8 = 10600

ATC = 10600 / 10000 = 1.06

c.

As minimum AVC is 900 / 1000 = 0.9 per poster

therefore, if price falls to 0.85, she should shut down the production

Therefore there is no output level at which she would not shut down produciton