Question

Question 4: Novotel Lotus provides catered meals, and the catered meals industry is perfectly competitive. Novotel Lotus machinery costs $100 per day and is the only fixed input. The firm's variable cost consists of the wages paid to the cooks and the food ingredients. The variable cost per day associated with each level of output is given in the accompanying table. Quantity of meals VC TC MC AVC ATC $200 $300 $480 $700 $1000 4.1. Calculate the total cost, the average variable cost, the average total cost, and the marginal cost for each quantity of output. Enter these figures in the table.

Answer 1

Answer to Question No. 4

P=$21 TC Profits TR Remarks VC FC MC AVC ATC MR 0 0 100 100 0 -100 210 10 200 100 300 20 20.0 30.0 21. -90 20.0 20 300 100 400 10 15.0 420 21. 20 The firm will produce at this point. Q 30 units. Profits $50. Firm will keep producing as it is earning profits and price ($21) is more than AVC ($16) 30 480 100 580 18 16.0 19.3 630 21 50 22 100 20.0 40 700 800 17.5 840 21 40 22.0 -50 50 1000 100 1100 30 20.0 1050 21. The break even price at which price equals the minimum of average total cost of production is P = ATC 19.3 The shut down price at which price equals the minimum of average variable cost of production is P AVC = 15 P-$17 Profits ATC Remarks VC FC TC MC AVC TR MR 0 0 100 100 0 -100 20.0 10 200 100 300 20 30.0 170 17 -130 The firm will produce at this point. Q 20 units. Losses $60. Firm will keep producing as it is earning profits and price ($17) is more than AVC ($15). 15.0 20 300 100 400 10 20.0 340 17 -60 30 480 100 580 18 16.0 19.3 510 17 -70 17.5 20.0 -120 40 700 100 800 22 680 17 -250 50 1000 100 1100 30 20.0 22.0 850 17 P-$13 Profits Remarks Q VC FC TC MC AVC ATC TR MR The firm will not produce at this point. Price is below minimum of AVC ($15). This is below shut down point 100 100 0 -100 10 200 100 300 20 20.0 30.0 130 13 -170 20 300 100 400 10 15.0 20.0 260 13 -140 30 480 100 580 18 16.0 19.3 390 13 -190 -280 40 700 100 800 22 17.5 20.0 520 13 50 1000 100 1100 30 20.0 22.0 650 13 -450

P=$21
Q	VC	FC	TC	MC	AVC	ATC	TR	MR	Profits	Remarks
0	0	100	100				0		-100
10	200	100	300	20	20.0	30.0	210	21	-90
20	300	100	400	10	15.0	20.0	420	21	20
30	480	100	580	18	16.0	19.3	630	21	50	The firm will produce at this point. Q = 30 units. Profits = $50. Firm will keep producing as it is earning profits and price ($21) is more than AVC ($16).
40	700	100	800	22	17.5	20.0	840	21	40
50	1000	100	1100	30	20.0	22.0	1050	21	-50
The break even price at which price equals the minimum of average total cost of production is P = ATC = 19.3
The shut down price at which price equals the minimum of average variable cost of production is P = AVC = 15
P=$17
Q	VC	FC	TC	MC	AVC	ATC	TR	MR	Profits	Remarks
0	0	100	100				0		-100
10	200	100	300	20	20.0	30.0	170	17	-130
20	300	100	400	10	15.0	20.0	340	17	-60	The firm will produce at this point. Q = 20 units. Losses = $60. Firm will keep producing as it is earning profits and price ($17) is more than AVC ($15).
30	480	100	580	18	16.0	19.3	510	17	-70
40	700	100	800	22	17.5	20.0	680	17	-120
50	1000	100	1100	30	20.0	22.0	850	17	-250
P=$13
Q	VC	FC	TC	MC	AVC	ATC	TR	MR	Profits	Remarks
0	0	100	100				0		-100	The firm will not produce at this point. Price is below minimum of AVC ($15). This is below shut down point.
10	200	100	300	20	20.0	30.0	130	13	-170
20	300	100	400	10	15.0	20.0	260	13	-140
30	480	100	580	18	16.0	19.3	390	13	-190
40	700	100	800	22	17.5	20.0	520	13	-280
50	1000	100	1100	30	20.0	22.0	650	13	-450