Question

You are given the following total costs for a production facility for digital watches:

Number of units Produced ('000)	0	10	20	30	40
Total Cost ($'000)	400	1,400	2,000	2,500	3,500

Assume the production facility produces where average variable costs are minimized. If the price is $80 per watch, what is your gain or loss? (If a loss, enter it as a negative number. Don't enter this as 'thousands of dollars' -- take into account that costs and output units are in thousands. For example, if the answer is $800,000, enter that as 800000, not as 800.)

Answer 1

Q (in thousand)	TC (in thousand)	TFC (in thousand)	TVC=TC-TFC (in thousand)	AVC=TVC/Q
0	400	400	0	-
10	1400	400	1000	100
20	2000	400	1600	80
30	2500	400	2100	70
40	3500	400	3100	77.5

Production facility produces where AVC are minimized. This means Q=30 units. If P=$80, then Total revenue = (30,000)(80)= $24,00,000 and total cost = $2500,000. This implies that there is a loss of $(2400,000-2500,000)= -100000.