Ball Bearings, Inc. faces costs of production as follows: Table 1: Ball Bearing Inc. Production Costs Quantity Total Fixed Cost Total Variable Cost 0 100 0 1 100 50 2 100 70 3 100 90 4 100 140 5 100 200 6 100 360 (a.) Calculate the company’s 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 can’t make a profit, the Chief Executive Officer (CEO) decides to shut down operations. What are the firm’s 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.
Ball Bearings, Inc. faces costs of production as follows:
Table 1: Ball Bearing Inc. Production Costs
Quantity Total Fixed Cost Total Variable Cost
0 100 0
1 100 50
2 100 70
3 100 90
4 100 140
5 100 200
6 100 360
(a.) Calculate the company’s average fixed costs,
at each level of production.
(b.) The price of a case of ball bearings is 50. Seeing that she can’t make a profit, the Chief Executive Officer
(CEO) decides to shut down operations. What are the firm’s
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.
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