A computer company produces affordable, easy-to-use home computer systems and has fixed
costs of $250. The marginal cost of producing computers is $700 for the first computer, $250 for
the second, $300 for the third, $350 for the fourth, $400 for the fifth, $450 for the sixth, and $500
for the seventh.
a. Create a table that shows the company’s output, total cost, marginal cost, average cost,
variable cost, and average variable cost.
b. At what price is the zero-profit point? At what price is the shutdown point?
c. If the company sells the computers for $500, is it making a profit or a loss? How big is
the profit or loss? Sketch a graph with AC, MC, and AVC curves to illustrate your
answer and show the profit or loss.
d. If the firm sells the computers for $300, is it making a profit or a loss? How big is the
profit or loss? Sketch a graph with AC, MC, and AVC curves to illustrate your answer
and show the profit or loss.
Sample Solution
