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the minimum loss

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.

Solution Preview

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 ...

Solution Summary

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

$2.19