A. 20B. it is advisable to operate the firm and produce an output of 4 units, where the loss is minimized to $\$ 40,$ otherwise firm has to bear a loss of $\$ 100 .$c)Profit maximization output is produced when MR $=M C,$ but at 1 unit output the firm incurs a loss of$\$ 100 .$ Instead it can go for 4 units of output, $\mathrm{MR}=\mathrm{MC}=50,$ and at this level of output all the variable expenses are covered and some part of fixed expenses are also covered by minimize the loss to $\$ 40 .$

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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







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Video Transcript

Okay, so we've got to do a lot of calculations here, But let's just see what we're looking at. We're told here that we need to figure out the average fixed costs for Ball Bearings, Inc. So let's look here. Let's look at this. Total fixed costs for the, uh, for each quantity level, okay. And so average fixed. Costs it pretty easy here. Right. We're going to take Lucy for for one unit produce that'll be one hundred divided by one. So our average fixed call third one now for two units that be one hundred divided by two. So that would be fifty. And then we go on down the line and see that our average fixed costs looked like this. Okay, so our average fixed calls again is just dividing this column by the quantity produced do the exact same thing for average variable costs. So average variable costs for one unit. I mean, let me bump this down. So this makes a little more central. Put a space there. There we go. All right, So for average variable cost, we're going to take the total variable cost and divided by the quantity. So here would be fifty seventy. Excuse Matori fifty divided, divided by one fifty, fifty. So seventy divided by two. Five. And then again go on on the line. Thirty. No, no. Thirty five. Forty, sixty Now knows that kind of increases as we go. Keep that in the back. Your mind now Average total calls. Well, let's just add those up and they're a little off center now, so let's make this move easier to look at it. Go. So for one unit, average total calls will be one fifty. Scream five B. Yeah. Six, three, three. All right, it's gonna get Milwaukee here. Um, I have sixteen. Sixteen, man. Yeah, let's just expand these a little bit. So they look, we're comparing apples to apples. We go. All rights are more. Let's do our total costs. An extra toe simplifies things a bit. So telephone calls that you can calculate this on your own. This was just simple addition. Thanks. And then again are marginal cost. Ah, Wilby. Just moving from one to the next. That was remarkable. Cultural quick! There, there. All right. A marginal cost for moving now. This is interesting. When we moved from zero toe one unit notice that are marginal cost. There is going to be from our total fixed calls of one hundred to our total cost of one fifty. So that marginal cost is fifty. All right, move Moving from one. Fifty to one. Seventy. Twenty once, seventy two, one. Ninety. Again twenty, uh, moving from one ninety two to forty. Ah, fifty. Big jump here. One forty on sixty to cap it all off now. Importantly, this question asked. All right, um, So what's our profit loss look like? If the price is fifty? It says that the CEO says, Hey, look, we can't make a profit of all at all. What? Shut down operations completely. Is this a wise decision? Well, actually, it's not. And why is that? Well, we've seen that the total profit or total losses in this exercise Well, if he shuts down at zero, he's going to incur costs of negative one hundred. If he shuts down at one unit, will incur a loss of fifty. Well, if we keep on going down the line here and we do, let's see, like over here, like his total calls, is one seventy here, But he would be making a profit of one hundred, So is lost. Their would be seventy. Great. Well, let's a scroll is up a little bit and look at all these losses. So as we go down the line will notice that his total losses actually go down a little bit the more he produces. So there's this world where he is at, um, three units of production or four units of production where he can actually minimize his loss. Noticed that is total loss, where we're normally talk about profit, but it is lost here is forty dollars. So rather than just sitting with the factory empty and running a negative one hundred dollars loss because he shut down actually makes sense for him to mitigate that by keeping the machines running, producing enough so that his total loss is forty dollars. Seems a little counterintuitive, But that's kind of how economics is sometimes