The XYZ Company produces whatchamacallits in a perfectly competitive industry. The market price is currently $8.50/unit. Freddie Freeloader, operations manager at XYZ's manufacturing facility in French Lick, Indiana, must decide how many whatchamacallits to produce each hour. If Freddie were to leave the industry, he could earn $10/hour at a job.

a. The below table shows the total cost/hour associated with each quantity of output. Fill in the appropriate marginal cost figures.

Quantity Total Cost Marginal cost Average Variable

0

6$ ..........

1 $10 _____ ______

2 $16 _____ ______

3 $25 _____ ______

4 $35 _____ ______

a. Should XYZ produce the first unit? Explain.

b. Should XYZ produce the second unit? Explain.

c. Should XYZ produce the 3rd unit? Explain.

d. Should XYZ produce the 4th unit? Explain.

e. Indicate Freddie's accounting and economic profit. Show your work.

Accounting profit: