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Ball Bearings, Inc. faces costs of production as follows: Total Total Fixed Variable
Chapter 14, Problem Problems and Applications 14.5(choose chapter or problem)
Ball Bearings, Inc. faces costs of production as follows: Total Total Fixed Variable Quantity Costs Costs 0 $100 $ 0 1 100 50 2 100 70 3 100 90 4 100 140 5 100 200 6 100 360 a. Calculate the companys average fixed costs, average variable costs, average total costs, and marginal costs at each level of production. b. The price of a case of ball bearings is $50. Seeing that she cant make a profit, the Chief Executive Officer (CEO) decides to shut down operations. What are the firms profits/ losses? Was this a wise decision? Explain. c. Vaguely remembering his introductory economics course, the Chief Financial Officer tells the CEO it is better to produce 1 case of ball bearings, because marginal revenue equals marginal cost at that quantity. What are the firms profits/losses at that level of production? Was this the best decision? Explain.
Questions & Answers
QUESTION:
Ball Bearings, Inc. faces costs of production as follows: Total Total Fixed Variable Quantity Costs Costs 0 $100 $ 0 1 100 50 2 100 70 3 100 90 4 100 140 5 100 200 6 100 360 a. Calculate the companys average fixed costs, average variable costs, average total costs, and marginal costs at each level of production. b. The price of a case of ball bearings is $50. Seeing that she cant make a profit, the Chief Executive Officer (CEO) decides to shut down operations. What are the firms profits/ losses? Was this a wise decision? Explain. c. Vaguely remembering his introductory economics course, the Chief Financial Officer tells the CEO it is better to produce 1 case of ball bearings, because marginal revenue equals marginal cost at that quantity. What are the firms profits/losses at that level of production? Was this the best decision? Explain.
ANSWER:Step 1 of 4
Production expenses decrease in the initial stages of production. After reaching the minimum point, they again increase because a company’s production capability reduces in the long run. A competitive industry’s price equals to its MC, AC, AR, MR in shorter while. A competitive continues production until AVC>Price.