10 Problems and Applications Q5 Ball Bearings, Inc

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10 Problems and Applications Q5

Ball Bearings, Inc., faces costs of production as follows:

Quantity	Total Fixed Costs	Total Variable Costs
	(Dollars)	(Dollars)
0	100	0
1	100	50
2	100	70
3	100	90
4	100	140
5	100	200
6	100	360

Complete the following table by calculating the company’s total cost, marginal cost, average fixed cost, average variable cost, and average total cost at each level of production.

Quantity	Total Cost	Marginal Cost	Average Fixed Cost	Average Variable Cost	Average Total Cost
	(Dollars)	(Dollars)	(Dollars)	(Dollars)	(Dollars)
0
1
2
3
4
5
6

The price of a case of ball bearings is $50. Seeing that he can’t make a profit, the company's chief executive officer (CEO) decides to shut down operations.

The firm’s profit in this case is $.................(Fill in the blanks with the dollar amount) (Note: If the firm suffers a loss, enter a negative number in the previous cell.)

True or False: This was a wise decision.

True

False

Vaguely remembering his introductory economics course, the company's 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.

At this level of production, the firm’s profit is.$.............(fill in the blanks with the dollar amount) (Note: If the firm suffers a loss, enter a negative number in the previous cell.).

True or False: This is the best decision the firm can make.

True

False