Unit 8 Assignment: Break–even Price and Shut–down Price

Unit 8 AB224 | Microeconomics
Unit 8 Assignment: Break–even Price and Shut–
down Price
Name:
Course Number and Section:AB224–0X
Date:
General Instructions for all Assignments
1. Unless specified differently by your course instructor, save this assignment template
to your computer with the following file naming format: Course
number_sectionnumber_Last_First_unit number
2. At the top of the template, insert the appropriate information: Your Name, Course
Number and Section, and the Date
3. Insert your answers below, or in the appropriate space provided for in the question.
Your answers should follow APA format with citations to your sources and, at the
bottom of your last page, a list of references. Your answers should also be in Standard
English with correct spelling, punctuation, grammar, and style (double spaced, in Times
New Roman, 12–point, and black font). Respond to questions in a thorough manner,
providing specific examples of concepts, topics, definitions, and other elements asked
for in the questions.
4. Upload the completed Assignment to the appropriate Dropbox.
5. Any questions about the Assignment, or format questions, should be directed to your
course instructor.
In this Assignment, you will be assessed on the following outcomes:
AB224-3: Examine how changes in the cost of production affect pricing and production
quantity decisions of a firm in a perfectly competitive market.
GEL-8.5: Apply critical thinking to the field of study.
Assignment
In this Assignment, you will define and calculate the remaining six major cost elements
of a business, when given the Total Costs and the Quantity Produced, as well as to use
the computed costs to determine a minimum cost output level for that business. In
addition, you will compute both the break-even price and the shut-down price for a
v.6.16.17 1 of 6

Unit 8 AB224 | Microeconomics
hypothetical business in a perfectly competitive market, anddetermine if that business
would incur an economic profit at various market prices, and should the firm continue to
produce at each of those price levels.
Questions
Table 2.a. shows an LED light bulb manufacturer’s total cost of producing LED light
bulbs.
Table 2.a.
Cases of LED
light bulbs
produced in an
hour
Total Cost
0 $4,500
10 $4,900
20 $5,100
30 $5,300
40 $5,400
50 $5,700
60 $6,700
70 $7,900
80 $9,700
90 $11,800
1. What is this manufacturer’s fixed cost? Explain why.
The fixed cost for the manufacturer is $ 4,500 since it is the cost incurred when 0 cases
of LED light bulbs are produced (Mankiw, 2014).
2. Assuming that you only know the Total Costs (TC) (as is shown in the Table 2.a.
above) explain howyou would calculate each of the following:
a. Variable Cost (VC): The variable cost can be derived by deducting the fixed costs
from the total costs for each of the different production level.
v.6.16.17 2 of 6

Unit 8 AB224 | Microeconomics
b. Average Variable Cost (AVC): This would be computed by dividing the total
variable cost for a given number of cases divided by the number of cases.
c. Average Total Cost (ATC): The total cost for different number of cases is
given in the table. To compute ATC, the total cost for a given number of
cases, the total cost would be divided by the number of cases
d. Average Fixed Cost (AFC): The fixed cost is $ 4,500 and does not alter with
the number of cases produced. Hence, ATC at a given production level
would be 4,500 divided by the number of cases.
e. Marginal Costs (of a single case): The difference in the total costs would be
divided by the difference in corresponding case production which would
provide the marginal cost.
3. In Table 3.a., for each level of output, insert into the table the values for:
a. the Variable Cost (VC);
b. the Average Variable Cost (AVC);
c. the Average Total Cost (ATC); and,
d. the Average Fixed Cost (AFC).
Table 3.a.
Cases of LED
light bulbs
produced in an
hour Total Cost
Variable
Costs
Average
Variable
Costs
Average
Total
Costs
Average
Fixed
Cost
a. b. c. d.
0 $4,500 0 n/a n/a n/a
10 $4,900 400 40 490.00 450.00
20 $5,100 600 30 255.00 225.00
30 $5,300 800 26.67 176.67 150.00
40 $5,400 900 22.50 135.00 112.50
50 $5,700 1200 24.00 114.00 90.00
60 $6,700 2200 36.67 111.67 75.00
70 $7,900 3400 48.57 112.86 64.29
80 $9,700 5200 65.00 121.25 56.25
90 $11,800 7300 81.11 131.11 50.00
v.6.16.17 3 of 6