Question

Karen runs a print shop that makes posters for large companies. It is a very competitive business. The market price is currently $1 per poster. She has fixed costs of $500. Her variable costs are $2,000 for the first thousand posters, $1,600 for the second thousand, and then $1,000 for each additional thousand posters.



Instructions: Round your answers to 3 decimal places.



a. What is her AFC per poster (not per thousand!) if she prints 1,000 posters? $
.



What if she prints 2,000 posters? $
.



What if she prints 10,000 posters? $
.



b. What is her ATC per poster if she prints 1,000? $
.



What if she prints 2,000? $
.



What if she prints 10,000? $
.



c. If the market price fell to 95 cents per poster, would there be any output level at which Karen would not shut down production immediately? .

Answer 1

$AFC =$ $Total fixed cost\over quantity$

$=$ $500\over1000$

$=0.5$

2000 poster

$=500\over 2000$

$=0.25$

10000 posters

$=$ $500\over10000$

$=0.05$

b)Average total cost

i)1000

$=$ $2000+500\over1000$

$=2.5$

ii)2000

$=$ $1600+500\over2000$

$1.05$

iii)10000

$=$ $500+1600+8000\over10000$

$=1.01$

c)The output should be at a level where the total revenue can be able to cover for variable cost for Karen to avoid a short run.