Based on your answers to the WipeOut Ski Company in Exercise 7.3, 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?

Exercise 7.3

The WipeOut Ski Company manufactures skis for beginners. Fixed costs are $30. Fill in Table 7.16 for total cost, average variable cost, average total cost, and marginal cost.

Table 7.16

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