Norm Fish makes cheap fishing rods and operates in a competitive market. The company has a fixed cost of $20,000 per period. In addition the firm incurs production or variable costs depending on its output as follows:
Output ('000s)
|
Variable Cost ($'000)
|
Fixed Cost ($'000)
|
Marginal Cost ($)
|
Average Variable Cost ($)
|
Average Total Cost ($)
|
1
|
30
|
20
|
|
|
|
2
|
39
|
20
|
|
|
|
3
|
45
|
20
|
|
|
|
4
|
63
|
20
|
|
|
|
5
|
85
|
20
|
|
|
|
6
|
135
|
20
|
|
|
|
7
|
215
|
20
|
|
|
|
8
|
315
|
20
|
|
|
|
a. Compute NormFish's Marginal Cost and Average Variable Cost for each production level shown.
b. Compute NormFish's Average Total Cost for each production level shown.
c. Suppose that the price NormFish can obtain for its products is $30 per rod. What output level will maximize NormFish's economic profit-Total Revenue less Total Cost.
d. What is the minimum price per rod that NormFish must receive if it is not to shut down its plant or production line in the short run?