1. Suppose the total cost of producing 10,000 tennis balls is $30,000 and the fixed cost is $10,000.
a. What is the variable cost of producing 10,000 tennis balls? Show your work.
b. When output is 10,000 balls, what is the average variable cost? Show your work.
c. When output is 10,000 balls, what is the average fixed cost? Show your work.
d. Assume that the cost curves have the usual shapes. Is the dollar difference between the average total cost and the average variable cost greater when the output is 10,000 tennis balls or 30,000 tennis balls? Briefly explain your answer.
2. A 2014 article in the Wall Street Journal described the Chinese automobile industry as a "hodgepodge of companies", most of which produce fewer than 100,000 cars per year. Ford Chief Executive at the time, Alan Mulally commented on the situation by saying "If you do not have scale, you just won't be able to be competitive" Briefly explain what Mulally meant.