General Instructions

Redstone Clayworks, Inc. is located in Sedona, Arizona and manufactures clay fire pits for patios. They are one of about two dozen firms around the world that manufacture and sell clay fire pits for retailers such as Home Depot, Lowes, Front Gate, and other upscale home product chains. There is virtually no product differentiation. A clay fire pit is a clay fire pit.

Assume that the world market demand and supply curves for clay fire pots intersects at $300 per unit.

The spreadsheet below gives some of Redstones production cost data. A template for the spreadsheet is provided in the Course Materials.

Q	TC	TFC	TVC
0	6,000	6,000	-
100	12,000	6,000	6,000
200	15,000	6,000	9,000
300	21,000	6,000	15,000
400	33,000	6,000	27,000
500	48,000	6,000	42,000
600	65,000	6,000	59,000
700	83,000	6,000	77,000
800	102,000	6,000	96,000
900	123,000	6,000	117,000
1000	158,000	6,000	152,000

Add columns to show, respectively, average fixed cost (AFC), average variable cost (AVC), average total cost (ATC), and short-run marginal cost (SMC). Then, add columns to show, respectively, total revenue (TR), marginal revenue (MR), total profit, average profit, and profit margin.

Your spreadsheet must include formulas showing how you arrived at the calculations. As an alternative, you may also submit a document showing your step-by-step calculations for each of the cells. You will not receive credit if you do not show your work using one of these two methods.

For Questions 2, 4, and 5, be sure to employ both of the General Rules for Implementing the Output Decision in your explanations.

A detailed explanation should be given for each question.

1. If Redstone wishes to maximize profit margin, how many units should it produce?

2.What level of output should the manager of Redstone choose to produce? Explain your choice in at least 100 words.

3.Are your output choices the same in questions 1 and 2? Why or why not? Explain using at least 100 words.

4.Make a copy of your spreadsheet and double the fixed costs. How does this change your answer to question 2? Explain in detail.

5. Make another copy of your spreadsheet and suppose that fire pits fall out of fashion causing prices fall worldwide to $85. How many units should the manager choose to produce? Explain.