KLM, Inc. is operating in a co
| KLM, Inc. is operating in a competitive market, andfaces costs of production as follows: |
| Q | FC | VC | TC | AFC | AVC | ATC | MC | TR | MR |
| 0 | 0 | 300 | |||||||
| 6 | 300 | ||||||||
| 12 | 420 | ||||||||
| 18 | 540 | ||||||||
| 24 | 840 | ||||||||
| 30 | 1200 | ||||||||
| 36 | 2160 |
| a. Calculate thecompany’s total costs, average fixed costs, average variable costs,average total costs, marginal costs, total revenue, and marginalrevenue at each level of production. | ||||||||||||||
| b. The price per unitis $160, the General Manager decides to shut down. Is it a wisedecision | ||||||||||||||
| c. Vaguelyremembering his introductory economics course, the FinancialManager tells the GM it is better to produce 36. Was the financialmanager correct? | ||||||||||||||
Select one:
a. None of the answers
b. a.
| Q | FC | VC | TC | AFC | AVC | ATC | MC | TR | MR |
| 0 | 300 | 0 | 300 | 0.00 | |||||
| 6 | 300 | 300 | 600 | 50.00 | 50.00 | 100.00 | 50 | 960 | 160 |
| 12 | 300 | 420 | 720 | 25.00 | 35.00 | 60.00 | 20 | 1920 | 160 |
| 18 | 300 | 540 | 840 | 16.67 | 30.00 | 46.67 | 20 | 2880 | 160 |
| 24 | 300 | 840 | 1140 | 12.50 | 35.00 | 47.50 | 50 | 3840 | 160 |
| 30 | 300 | 1200 | 1500 | 10.00 | 40.00 | 50.00 | 60 | 4800 | 160 |
| 36 | 300 | 2160 | 2460.00 | 8.33 | 60.00 | 68.33 | 160 | 5760 | 160 |
bb. Nocc. Yesc.
| Q | FC | VC | TC | ATC | AVC | AFC | MR | TR | MC |
| 0 | 300 | 0 | 300 | 0.00 | |||||
| 6 | 300 | 300 | 600 | 50.00 | 50.00 | 100.00 | 50 | 960 | 160 |
| 12 | 300 | 420 | 720 | 25.00 | 35.00 | 60.00 | 20 | 1920 | 160 |
| 18 | 300 | 540 | 840 | 16.67 | 30.00 | 46.67 | 20 | 2880 | 160 |
| 24 | 300 | 840 | 1140 | 12.50 | 35.00 | 47.50 | 50 | 3840 | 160 |
| 30 | 300 | 1200 | 1500 | 10.00 | 40.00 | 50.00 | 60 | 4800 | 160 |
| 36 | 300 | 2160 | 2460.00 | 8.33 | 60.00 | 68.33 | 160 | 5760 | 160 |
b.Yesc. Nod.
| Q | FC | VC | TC | ATC | AVC | AFC | MR | TR | MC |
| 0 | 3000 | 0 | 300 | 0.00 | |||||
| 6 | 3000 | 300 | 6000 | 500 | 50.00 | 100.00 | 50 | 960 | 160 |
| 12 | 3000 | 420 | 7200 | 250 | 35.00 | 60.00 | 20 | 1920 | 160 |
| 18 | 3000 | 540 | 8400 | 1660 | 30.00 | 46.67 | 20 | 2880 | 160 |
| 24 | 3000 | 840 | 11400 | 1250 | 35.00 | 47.50 | 50 | 3840 | 160 |
| 30 | 3000 | 1200 | 15000 | 1000 | 40.00 | 50.00 | 60 | 4800 | 160 |
| 36 | 3000 | 2160 | 24600 | 833 | 60.00 | 68.33 | 160 | 5760 | 160 |
b. Noc.Yese.
| Q | FC | VC | TC | AFC | AVC | ATC | MC | TR | MR |
| 0 | 300 | 0 | 300 | 0.00 | |||||
| 6 | 300 | 300 | 600 | 50.00 | 50.00 | 100.00 | 50 | 960 | 160 |
| 12 | 300 | 420 | 720 | 25.00 | 35.00 | 60.00 | 20 | 1920 | 160 |
| 18 | 300 | 540 | 840 | 16.67 | 30.00 | 46.67 | 20 | 2880 | 160 |
| 24 | 300 | 840 | 1140 | 12.50 | 35.00 | 47.50 | 50 | 3840 | 160 |
| 30 | 300 | 1200 | 1500 | 10.00 | 40.00 | 50.00 | 60 | 4800 | 160 |
| 36 | 300 | 2160 | 2460.00 | 8.33 | 60.00 | 68.33 | 160 | 5760 | 160 |
b. Yesa. Nof.
| Q | FC | VC | TC | AFC | AVC | ATC | MC | TR | MR |
| 0.00 | 2100.00 | 0.00 | 2100.00 | na | na | na | 0.00 | na | |
| 42.00 | 2100.00 | 2100.00 | 4200.00 | 50.00 | 50.00 | 100.00 | 50.00 | 6720.00 | 160.00 |
| 84.00 | 2100.00 | 2940.00 | 5040.00 | 25.00 | 35.00 | 60.00 | 20.00 | 13440.00 | 160.00 |
| 126.00 | 2100.00 | 3780.00 | 5880.00 | 16.67 | 30.00 | 46.67 | 20.00 | 20160.00 | 160.00 |
| 168.00 | 2100.00 | 5880.00 | 7980.00 | 12.50 | 35.00 | 47.50 | 50.00 | 26880.00 | 160.00 |
| 210.00 | 2100.00 | 8400.00 | 10500.00 | 10.00 | 40.00 | 50.00 | 60.00 | 33600.00 | 160.00 |
| 252.00 | 2100.00 | 15120.00 | 17220.00 | 8.33 | 60.00 | 68.33 | 160.00 | 40320.00 | 160.00 |
b. Yesc. No
Answer:
b. In this case Price Per Unit is $160 and it is greater thanAVC. So firm should not shut down. Rather it should continue itsoperations.
The shut down price is the minimum price a business needs tojustify remaining in the market in the short run
A business needs to make at least normal profit in the long runto justify remaining in an industry but in the short run a firmwill continue to produce as long as total revenue covers totalvariable costs or price per unit > or equal to average variablecost (AR = AVC). This is called the short-run shutdown price
c) The profit Maximizing Output is where MR = MC. In this caseat 36 units MR = MC = 160. So this is the profit maximizing output.Yes Finance Manager is correct.
"Our Prices Start at $11.99. As Our First Client, Use Coupon Code GET15 to claim 15% Discount This Month!!"
