Ball Bearings, Inc. faces costs of production as follows:
Table 1: Ball Bearing Inc. Production Costs
Quantity Total Fixed Cost Total Variable Cost
0 100 0
1 100 50
2 100 70
3 100 90
4 100 140
5 100 200
6 100 360
(a.) Calculate the company’s average fixed costs, average variable costs, average total costs, and marginal costs
at each level of production.
(b.) The price of a case of ball bearings is 50. Seeing that she can’t make a profit, the Chief Executive Officer
(CEO) decides to shut down operations. What are the firm’s profits/ losses? Was this a wise decision?
Explain.
(c.) Vaguely remembering his introductory economics course, the Chief Financial Officer tells the CEO it is
better to produce 1 case of ball bearings, because marginal revenue equals marginal cost at that quantity.