Assume a European company that manufactures decorative fountain pens. The firm is trying to decide whether or not to expand its facilities. Currently, its fixed costs are $750,000 per month, and its average variable costs are $1.25 per pen. If the firm expands, its fixed costs will increase by $350,000 per month but its average variable costs will fall to $0.75 per pen. a. Write out the formula for the firm's current (short run) total cost TC(q), and its (short run) total cost TC(q) if it expands, with q measures the number of pens per month. Suppose the firm has a monthly volume of 600,000 pens. Should it expand? What about if the firm expects its volume to increase to 800,000 pens a month? b.

Assume a European company that manufactures decorative fountain pens. The firm is trying to decide whether or not to expand its facilities. Currently, its fixed costs are $750,000 per month, and its average variable costs are $1.25 per pen. If the firm expands, its fixed costs will increase by $350,000 per month but its average variable costs will fall to $0.75 per pen. a. Write out the formula for the firm's current (short run) total cost TC(q), and its (short run) total cost TC(q) if it expands, with q measures the number of pens per month. Suppose the firm has a monthly volume of 600,000 pens. Should it expand? What about if the firm expects its volume to increase to 800,000 pens a month? b.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter8: Perfect Competition

Section: Chapter Questions

Problem 41P: A computer company produces affordable, easy-to-use home computer systems and has fixed costs of...

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