Question

3. The Pinnacle Pickles Company makes small batch pickles from a special recipe. Its goal is to maximize profit. This year it is renting test kitchen space during pickling season at a fixed cost ((FC) of $1,800 per week, plus variable costs (VC) for labor and ingredients. Weekly output levels (Q, in jars) and associated VC appear below. (VC include returns on owner investment and management effort.) (31%) To lay the foundation for management decisions, please complete the table below by filling in unshaded cells with total cost (TC), average variable cost (AVC), and average total cost (ATC). Please also calculate unshaded values between output levels: incremental change in variable cost (AVC), incremental change in quantity (Aa), and marginal cost (MC) per jar of pickles (calculated from the incremental change numbers). Round AVC, ATC and MC values to two decimal places (cents). TC 1909 AVC ATC AVCAQ MC =vc/a Tela - AVC/AQ | VCTC 0 $0 $1800 700 191 -3.52 199 $700 2500 poston 352|250poetes 700 428 = 1.64 627 $1,400 3200 /7:123 51 LIDO 700 506 = 1.38 1,133 $2,100 3900=.85 700 428 -1.64 1,561 $2,800 4600 - 1.79295 700 199 1-3,52 1,760 $3,500 5300 -1.99 3.0/

could you please explain #5 and #6? Thank you

Answer 1

Quantity	Total Cost	Total revenue @$3	Profit/Loss@$3	Total revenue @$2	Profit/Loss@$2
0	1800	-	(1800)	-	(1800)
199	2500	597	(1903)	398	(2102)
627	3200	1881	(1319)	1254	(1946)
1133	3900	3399	(501)	2266	(1634)
1561	4600	4683	83	3122	(1478)
1760	5300	5280	(20)	3520	(1780)

Answer 5a :-

In long run it can only accept this price at an output level of 1561 because at this output level the person is earning a profit of 83 As given in the above schedule

Answer 5b :-

The person can accept this price in short run only for output level 627, 1133 1561 and 1760. Producing 199 a short run for long run will be and profitable for the company. The criteria seen in the short run is that the loss incurred due to production should be less than the loss incurred if the production will not take place. This means if the loss in curd due to to production where the cost exceeds the revenue is less than the fixed cost of 1810 the production level is acceptable in short run.

Answer 5c :-

The most profitable output level is 1561 because only at this output level the profit is positive elss all other output levels are inncuring losses .

Answer 5d :-

the the most profitable output level is determined by calculating the total cost of the output and calculating total revenue by multiplying the quantity produced by the revenue or price for unit of the product. Therefore whenever the the revenue exceeds the cost it is considered to be a profitable level of output where as when the the cost exceeds the total revenue earned it is not viable option for the company to keep reducing such goods and long run as a company cannot operate and losses for long run.

Answer 6a :-

As this is a case of short run the Pinnacle could accept such offer only for 1133, 1561 and 1760 level of output because at this level the loss incurred due to production is less than the fixed cost that will be incurred even if the production is not taking place. However at 199 and 627 level of output the total loss is Surpassing the fixed cost level and thus the output levels are not viable even and short run.

Answer 6b :-

If Pinnacle accept offer it would gain him no profits at any level of output as all level of output are giving him losses. However there are three levels of output that a leading to a lesser loss in comparison to loss incurred when zero level of production is taking place.

If he does not accept any offer, a fixed cost of 1800 has to be paid leading to a loss of $1800 only.