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The cost schedule of producing coffee in Hilo is shown below.
Output in tones Cost in $ VC ATC AVC MC
0 200
1 437.8 237.8 437.8 237.8 237.8
2 596.4 396.4 298.2 198.2 158.6
3 692.6 492.6 230.8667 164.2 96.2
4 743.2 543.2 185.8 135.8 50.6
5 765 565 153 113 21.8
6 774.8 574.8 129.1333 95.8 9.8
7 789.4 589.4 112.7714 84.2 14.6
8 825.6 625.6 130.2 78.2 36.2
9 900.2 700.2 100.0222 77.8 74.6
10 1030 830 103 83 129.8

If the price of coffee is $90 per ton, should the farm continue to operate at a loss or should it shut down. If it continues to operate at a loss, how much subsidy must the government pay to assure the company reaches break even at least.

Find the level of output that minimized the loss.

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Solution Summary

The solution discusses pricing and output under pure competition. It finds the level of output that minimized the loss.

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When the price is $90, it is higher than the minimum average variable cost (AVC) when the output is 7 tones or more. However, it is always lower than the average total cost (ATC). Given ...

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