Question

Perfect Competition and the Supply Curve - Work It Out: Question 5 of 5 Suppose that the price at which Kate can sell catered meals is $13 per meal. In the short-run, how many meals should Kate produce? Kate should shut down in the short-run and shut down in the long run.

this is all the info given. theres no other info given.

Answer 1

Q	VC	TC	AVC	ATC	MC
0	0	100
10	200	300	20.00	30.00	20.00
20	300	400	15.00	20.00	10.00
30	480	580	16.00	19.33	18.00
40	700	800	17.50	20.00	22.00
50	1000	1100	20.00	22.00	30.00

5)

In this case price ($13)< minimum AVC ($19.33). So,

Firm should shut down in short run to minimize loss

Firm should produce 0 output.

Firm should shut down in short run and shut down in long run

2)

Break even price=Minimum ATC=$19.33

Shut down price=Minimum AVC=$15.00

3)

A firm increases its output as long as MC<P or MC=P to maximize profit.

In this case P>minimum AVC. Firm should produce in short run

In this case MC<P ($21) for output of 30 units and MC>P ($21) for a output of 40 units.

Optimal output is 30 units.

At this point ATC($19.33) <Price. So, firm will make a profit.

So, correct option is

d) when the price is $21, Kate will make a profit, the price is above her break even price

4)

A firm increases its output as long as MC<P or MC=P to maximize profit.

In this case P>minimum AVC. Firm should produce in short run

In this case MC=P ($18) for output of 30 units. So, optimal output is 30 units.

At this point ATC($19.33) >Price. So, firm will make a loss.

Optimal output is 30 units

Kate should operate in short run and shut down in long run

1)

For a output of 40 units. Refer above table;

AVC=$17.50

ATC=$20

MC=$22