Answer to Question #59385 in Microeconomics for georgi

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 $100. Her variable costs are $1,500 for the first thousand posters, $1,200 for the second thousand, and then $800 for each additional thousand posters.

Answer 1

P = $1, FC = $100, VC = $1,500 for the first thousand posters, $1,200 for the second thousand, and then $800 for each additional thousand posters.
Shutdown point is determined by the AVC, so the firm will shut down, if P < AVC. If the market price fall to $0.7 per poster, then AVC = 1500/1000 = $1.5 per poster for the first thousand posters, AVC = 1200/1000 = $1.2 per poster for the second thousand posters and AVC = 800/1000 = $0.8 per poster for the each additional thousand posters, so at any level of production P < AVC and the firm should shut down.