Challenger Technique
Q output	TC	TFC	TVC	ATC	MC	AVC	AFC
0	100
1	190
2	270
3	340
4	400
5	470
6	550
7	640
8	750
9	880
10	1030
11	1200
Original Technique
Q output	TC	TFC	TVC	ATC	MC	AVC	AFC
0	150
1	230
2	300
3	360
4	435
5	515
6	600
7	695
8	800
9	915
10	1045
11	1195
12	1385

Cost Structures & Business Decisions

This assignment is designed to challenge your ability to understand realistic cost structures and make profit-maximizing decisions with them. I have included below two costs structures, one that corresponds with an original technique of production another with a new ("challenger") technique of production.

Given the output versus cost data in the first two columns of the spreadsheet, complete the costs table for both techniques of production. Your responses to the remaining questions will be based upon that data.

Assume that these are the two most efficient techniques of production available, so that we can simply compare what the two competing techniques offer us.

1. What is the minimum average total cost of the Challenger technique?
2. The Challenger technique offers its minimum average total cost when output is _____.
3. What is the minimum average total cost of the Original technique?
4. The Original technique offers its minimum average total cost when the level of output is _____.

Now assume a short-run situation where there are a number of different firms using each technique of production, and they are competing within the same industry. The quality of the product is completely standardized; these firms compete only on the basis of how cheaply they can produce it. They can sell all output at $96 per unit.

1. Firms using the Original technique of production will maximize profit or minimize loss at $_____ by producing at level of output = ________.
2. Firms using Challenger technique of production will maximize profit or minimize loss at $______ by producing at level of output = ________.

Now consider the long-run situation remembering that positive profits will attract more competitors to the industry and losses will repel firms from the industry.

1. Why will one technique of production prevail over the other?
2. How low will price need to fall before firms using the less efficient technique of production will go out of business in the long-run? Answer with a number: $_____________
3. Ultimately, when all market adjustment is complete, what will be the price in this market? Answer with a number: $_____________
4. Why will the market's price adjustment stop at the price you identified in the previous question?