Karen runs a print shop that makes posters for large companies. It is a very competitive business. The market price is currently $1 per poster. She has fixed costs of $250. Her variable costs are $1000 for the first thousand posters, $800 for the second thousand, and then $750 for each additional thousand posters (Total, 50 points). LO3 - Chapter 8
(a) What is her AFC per poster (not per thousand!) if she prints 1000 posters? 2000? 10,000? (16.7 points)
(b) What is her ATC per poster if she prints 1000? 2000? 10,000? (16.7 points)
(c) If the market price fell to 70 cents per poster, would there be any output level at which Karen would not shut down production immediately? (16.7 points)

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Definitions
AFC (Average Fixed Cost) = Total Fixed Cost/Total Units
ATC (Average Total Cost) = Total Cost/Total Units = (Total Fixed Cost + Total Variable Cost)/Total Units

Part A
1,000 posters: ...

Solution Summary

This solution calculates the average fixed cost, average total cost and output level for shutdown based on different market demand levels.

... P2.10 Average Cost Minimization. ... A. Calculate output, marginal cost, average cost, price, and profit at the average-cost minimizing activity level. ...

... What is marginal cost of capital and how does it differ from weighted average cost of capital? ... Hence single weighted average cost of capital is not used. ...

... WACC is the weighted average cost of capital whereby the target proportions of debt and equity along with the component costs of capital are used to calculate. ...

... d. Is the firm's price equal to its long-run average cost at this output? ... So, the firm's price is equal to its long-run average cost at this output q = 20. ...