Ball Bearings, Inc. faces costs of production as follows:

Quantity Total Fixed Costs Total Variable Costs 0 $100 $0 1 100 50 2 100 70 3 100 90 4 100 140 5 100 200 6 100 360

a. Calculate the company’s average fixed costs, average variable costs, average total costs, and marginal costs at each level of production.

b. The price of a case of ball bearings is $50. Seeing that he can’t make a profit, the chief executive officer

(CEO) decides to shut down operations.

What is the firm’s profit/loss? Was this a wise decision?

Explain.

c. Vaguely remembering his introductory economics course, the chief financial officer tells the CEO it is better to produce 1 case of ball bearings, because marginal revenue equals marginal cost at that quantity. What is the firm’s profit/loss at that level of production? Was this the best decision? Explain.