Q 12.13. A firm faces diseconomies of scale in both production and sales. It can produce goods
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Q 12.13. A firm faces diseconomies of scale in both production and sales. It can produce goods for an average per-unit cost of $5+ (Q $1+$20)/100, where Q is the number of units. For example, to produce 10 goods would cost 10 ($5+ $30/100) = $53. The market price per good is $7-Q-$1/100. So, sales of 10 goods would generate 10- ($7-$10/100) = $69 in gross revenues. Use a spreadsheet to answer the following questions. 1. How many items should the firm produce? 2. What are the average per-unit gross sales at this point? 3. What is the average per-unit production cost at this point? 4. What are the average per-unit net sales (gross minus cost) at this point? 5. What are the marginal per-unit sales at this point? 6. What is the marginal per-unit cost at this point? 7. What is the marginal per-unit net change at this point? 8. If your average per unit net change at this point is positive, should you expand production? Why?
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