No cover page needed
Competency
Define relevant cost of producing goods and the impact on short-run and long-run production decisions.
Determine factors that impact a firm’s decision to supply goods to the market.
Instructions
1) Complete the following table:
Quantity TVC TFC TC AVC AFC ATC MC PRICE
0 0 50 80
1 50 80
2 90 80
3 110 80
4 150 80
5 210 80
6 290 80
7 410 80
After which quantity level does diminishing marginal returns begin?
Which level of production (quantity) maximizes profit for a perfectly-competitive firm?
What would be the profit at the profit maximizing level of output?
After answering the above questions and completing the table, compose a 3-page write up explaining the essentials of production cost to your manager who doesn’t understand why you would not continue to increase output infinitely. Be sure in your write up to, not only address the questions above but, include the following:
Why the cost of production diminishes at first and then rises
Why some costs remain constant at all levels of production
What the profit maximizing level of output means and why it is not necessarily at the maximum level of workers given in the table
What happens if you continue to increase output above the profit maximizing level
Whether this is a long run view or a short run view
