Problem: Kate's Katering provides catered meals, and the catered meals industry is perfectly competitive. Kate's machinery costs $100 per day and is the only fixed input. Her variable cost is comprised of the wages paid to the cooks and the food ingredients.
The variable cost associated with each level of output is given in the accompanying table.
Quantity of meals VC
0 $0
10 200
20 300
30 480
40 700
50 1,000
Q1. Calculate the total cost, the average variable cost, the average total cost, and the marginal cost for each quantity of output.
Q2. What is the break-even price? What is the shut-down price?
Q3. Suppose that the price at which Kate can sell catered meals is $21 per meal. In the short run, will Kate earn a profit? In the short run, should she produce or shut down?
Q4. Suppose that the price at which Kate can sell catered meals is $17 per meal. In the short run, will Kate earn a profit? In the short run, should she produce or shut down?
Q5. Suppose that the price at which Kate can sell catered meals is $13 per meal. In the short run, will Kate earn a profit? In the short run, should she produce or shut down?