Question

In the market for pickled herring there are two competing producers: Abbas and Taste of Base. Both herring manufacturers have fixed cost worth $880,000 a year and a constant marginal and average variable cost of $3.22 per jar. In the current year, Abbas produced and sold 400,000 jars of herring while Taste of Base produced and sold 222,000 jars. Based on this information, we can expect Abbas' quantity sold to _____________ and its ________ in the future.

Answer 1

Answer:  increase; average fixed cost to decrease

Explanation:

Abbas produced 400,000 jars which is more than those produced by Taste of Base. With a higher quantity of jars produced, we can expect that they will sell more jars which means that Abbas' quantity sold will increase.

Average fixed cost is calculated by dividing Fixed costs by quantity produced. If Abbas produces more jars as they did, the quantity dividing fixed costs will be more which means that the Average Fixed cost will be less. Simply put, there is less fixed cost per jar, the higher the number of jars produced.