Ervin runs a wholesale food distributorship in a perfectly competitive industry. Ervin
can move up to 10,000 pounds of vegetables and fruit per month without increasing his
average variable costs of sorting, packing, and transporting the food (i.e., excluding the
cost of the food). His current fixed costs per month are $10,000. Shown below are his
average variable costs per 1000 lbs of food moved. These represent the costs of
storing and transporting the food, not purchasing it.
Current Proposed
Output AVC AVC
0
1000
2000
3000
4000
5000
10000
11000
12000
13000
14000
15000
16000
17000
18000
19000
20000
0
0
100 $50
100
$50
100
$50
100
$50
100
$50
100
$50
102
$60
104
$70
106
$80
108
$90
110 $100
115
$110
120
$120
130
$150
150
$200
200
250
a. (10 points) Find his MC curve and his ATC.
On excel sheet
b. (10 points) If the cost of the food alone per 1000lbs is $100, how much should he
"move" if he can get $300 per 1000 lbs? Explain.
1
c. (10 points) Ervin contemplates moving his entire operation to a modern warehouse
which would increase his monthly fixed costs by $4,000 to $14,000 but it radically
changes his AVC (see table above). Find his MC and ATC for the new modern
warehouse.
d. (10 points) Ervin expects the price per 1000lbs to stay at $300. Would Ervin better
or worse off with the addition to the warehouse? Explain.