Price Discrimination

1-The WipeOut Ski Company manufactures skis for beginners. Fixed costs are 30. Fill in the following table for total cost, average variable cost, average total cost, and marginal cost.

Quantity    Variable Cost    Fixed Cost
0    0    $30
1    $10    $30
2    $25    $30
3    $45    $30
4    $70    $30
5    $100    $30
6    $135    $30

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2- Based on your answers to the WipeOut Ski Company in question 1, now imagine a situation where the firm produces a quantity of 5 units that it sells for a price of $25 each.
a.    What will be the company’s profits or losses?
b.    How can you tell at a glance whether the company is making or losing money at this price by looking at average cost?
c.    At the given quantity and price, is the marginal unit produced adding to profits?

3-A computer company produces affordable, easy-to-use home computer systems and has fixed costs of $250. The marginal cost of producing computers is $700 for the first computer, $250 for the second, $300 for the third, $350 for the fourth, $400 for the fifth, $450 for the sixth, and $500 for the seventh. See more details at https://en.wikipedia.org/wiki/Price_discrimination

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a.    Create a table that shows the company’s output, total cost, marginal cost, average cost, variable cost, and average variable cost.
b.    At what price is the zero-profit point? At what price is the shutdown point?
c.    If the company sells the computers for $500, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVC curves to illustrate your answer and show the profit or loss.
d.    If the firm sells the computers for $300, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVC curves to illustrate your answer and show the profit or loss.

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