Calculate the total cost and average variable cost
Managerial Economics
Kate’s Katering provides catered meals, and catered meals industry is
perfectly competitive. Kate’s equipment costs $100 per day and is the only
fixed input. Her variable cost is comprised of the wages paid to the cooks and
the food ingredients. The variable cost associated with each level of output
is given in the accompanying table.
Quantity of meals VC
0 $0
10 200
20 300
30 480
40 700
50 1,000
a. Calculate the total cost, the average variable cost, the average total
cost, and the marginal cost for each quantity of output.
b. What is the break-even price? What is the shut-down price?
c. Suppose that the price at which Kate can sell catered meals is $21 per
meal. In the short run, will Kate earn a profit? In the short run, should she
produce or shut down?
d. Suppose that the price at which Kate can sell catered meals is $17 per
meal. In the short run, will Kate earn a profit? In the short run, should she
produce or shut down?
e. Suppose that the price at which Kate can sell catered meals is $13 per
meal. In the short run, will Kate earn a profit? In the short run, should she
produce or shut down?
