Managerial Economics: A Problem Solving Approach
5th Edition
ISBN: 9781337106665
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
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Chapter 5, Problem 10MC
To determine
The factor that should not be taken into consideration on the shutdown decision of a firm.
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Ball Bearings, Inc. faces costs of production as follows:Table 1: Ball Bearing Inc. Production CostsQuantity Total Fixed Cost Total Variable Cost0 100 01 100 502 100 703 100 904 100 1405 100 2006 100 360(a.) Calculate the company’s average fixed costs, average variable costs, average total costs, and marginal costsat each level of production.(b.) The price of a case of ball bearings is 50. Seeing that she can’t make a profit, the Chief Executive Officer(CEO) decides to shut down operations. What are the firm’s profits/ losses? Was this a wise decision?Explain.(c.) Vaguely remembering his introductory economics course, the Chief Financial Officer tells the CEO it isbetter to produce 1 case of ball bearings, because marginal revenue equals marginal cost at that quantity.
Does the firm can also earn zero profit or even loss where MC=MR?
a.
maybe
b.
yes
c.
sometimes
d.
no
When are you are you expecting companies to produce in the short run?A. costs equal equal revenueB. price equals marginal revenueC. Average costs equal marginal costsD.marginal revenue equals marginal cost
Chapter 5 Solutions
Managerial Economics: A Problem Solving Approach
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- Laura’s cleaning service is a profit-maximising, competitive firm. Laura cleans awhole house for $156. Her total cost each day is $1680, of which $480 is a fixed cost. She cleans 8 houses a day.(a)Should Laura shutdown her business in the short-run, assuming that she cannot recover her fixed cost?(b) Should she exit in the long-run?arrow_forwarda) What is the averge total cost at which this firm reaches its break even point b) what is the average variable cost at which this firm reaches it shut down point?arrow_forward21) In the short run where total variable cost is ________ at a(n) ________ rate, marginal cost is positive and decreasing.A) increasing; decreasing B) increasing; increasingC) decreasing; decreasing D) decreasing; increasingarrow_forward
- Ball Bearings Inc. faces costs of production as follows:Quantity Total Fixed cost Total Variable Cost0 200 01 200 502 200 703 200 904 200 1405 200 2006 200 360a. Calculate the company’s average fixed costs, average variable costs, average total costs, andmarginal costs. a. The price of a case of ball bearings is $50. Seeing that she can’t make a profit, the chiefexecutive officer (CEO) decides to shut down operations. What are the firm’s profits/losses?Was this a wise decision? Explain. b. Vaguely remembering his introductory economics course, the chief financial officer tells the CEOit is better to produce one case of ball bearings because marginal revenue equals marginal costat that quantity. What are the firm’s profits/losses at that level of production? Was this the bestdecision? Explain.arrow_forwardWhat does it mean to be operating a firm in the "long run?" What does it mean to be operating a firm in the "short run"? What are the practical implications for managing a business if you are in "short run?arrow_forwardFertilizer Q TFC TVC TC MC ATC AVC AFC TR MR 25 70 1300 100 8 150 10 55 220 3500 Notes: Fertilizer, Q, TFC, TVC, TC, MC, ATC, AVC and AFC refer to quantity of fertilizer (in units), quantity of output (in units), total fixed cost, total variable cost, total cost, marginal cost, average total cost, average variable cost and average fixed cost, respectively. Answer the following questions based on the Table completed: What is the marginal input cost? Answer Is the firm making a profit or loss? Is the firm operating in the long-run or in the short-run? Why?arrow_forward
- 40) When a decrease in the scale of production leads to higher average costs, the industry exhibitsA) diminishing returns. B) decreasing returns to scale.C) constant returns to scale. D) increasing returns to scale.arrow_forwardHello! My question has been answered already, however, I wanted to make sure the answers are correct. can someone else answer this problem again? Kindly include a step-by-step process and solution. Thank you so much! Ps: This is the last question, I just forgot to include it in the picture. Thank you! C. At what price will the firm decide to shut-down in the short-run?arrow_forwardhow Marginal cost been calculated here. {MC=Change in ATC/Change in Q} please explian still not clear!!arrow_forward
- Q: A farmer plane to harvest maize on his specific land. Discuss all factors of production whichhe need to harvest the whole season of crop. Also mentioned their rewards. Differentiate between economic profit and accounting profit, implicit explicit cost, total cost, variable cost, & average cost?arrow_forwardwhat is meant by the term Cost of production? Distinguish between fixed and variable cost. Why short run average cost and marginal cost curve generally U-Shaped?arrow_forwardMegan’s Snow Shoveling Service, in which Megan is the only employee, has the following cost schedule. Quantity(sidewalks shoveled per day) Variable Cost Total Cost AVC ATC MC 0 $0 $30 - - - 1 10 40 10 40 10 2 25 55 12.5 27.5 15 3 45 75 15 25 20 4 70 100 17.5 25 25 5 100 130 20 26 30 6 135 165 22.5 27.5 35 a) What are Megan’s fixed costs? Given the nature of sidewalk shoveling production, why does Megan’s marginal cost curve look like it does in your graph? b)Suppose the market price for shoveling a sidewalk is $20 per sidewalk. How many sidewalks will Megan shovel each day to maximize profit? c)Suppose the market price of shoveling a sidewalk rises to $25 because it has been a snowy winter. How many sidewalks will Megan shovel each day to maximize profit?arrow_forward
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