Question

 Igrushka is a profit-maximizing firm producing wooden dolls, which it can produce and sell in its home country, Russia, and abroad in France. The average cost (AC) curve on the following graph represents Igrushka’s cost of producing wooden dolls within one factory, whether in Russia or in France        

Suppose that at the current market price of wooden dolls, the demand for Igrushka’s product is 20,000 wooden dolls per year in Russia and 10,000 wooden dolls per year in France. (Hint: Select each point on the previous graph to see its coordinates.)

Based on Igrushka’s average cost curve, within one factory it can produce 10,000 wooden dolls at _____ per wooden doll, produce 20,000 wooden dolls at ______per wooden doll, and produce the total of 30,000 wooden dolls at ______per wooden doll.

Complete the following table by indicating Igrushka’s total production cost for each scenario.

Scenario	Total Production Cost
	(Dollars)
Produce 20,000 wooden dolls in Russia and   10,000 wooden dolls in France.
Produce 30,000 wooden dolls at the same   factory.

Now suppose that if Igrushka produces wooden dolls in one country and sells them in the other, it incurs an additional shipping cost equal to $4.00 per transported wooden doll.

If Igrushka produces 30,000 wooden dolls in Russia and transports 10,000 of them to France, its total cost of production and shipping is ______

.If Igrushka produces 30,000 wooden dolls in France and transports 20,000 of them to Russia, its total cost of production and shipping is _______

.

Based on Igrushka’s production and shipping costs determined in the previous questions, which of the following is Igrushka’s best production strategy?

Produce 20,000 wooden dolls in Russia and 10,000 wooden dolls in France.

Produce 30,000 wooden dolls in Russia and ship 10,000 wooden dolls to France.

Produce 30,000 wooden dolls in either Russia or France.

Produce 30,000 wooden dolls in France and ship 20,000 wooden dolls to Russia.