Economics 1 – A firm incurs fixed costs over the short run

Subject: Economics / General Economics
Question
Economics 1 – Fall 2016
Homework 2
Name: _______________________________________ ID: ______________________ 1. A firm incurs fixed costs over the short run, even when its output is zero. Its variable costs change
depending on how much quantity it produces. You as a student also incur fixed and variable costs.
a. What are your fixed costs for school, i.e. even if you chose to never attend class this
semester, what costs did you have to pay? b. What are your variable costs for every day that you attend class? 2. You are a student deciding to produce ‘good grades’ in your classes.
a. What are the necessary inputs you need to produce those good grades? How much of each do
you need and how do you combine those inputs? b. Do these inputs for producing good grades differ by course? Explain. 3. Suppose your teacher announces that only 1 student in the class will get a good grade. How will your
efforts to produce good grades change when you are a monopoly (the only student in class) and when
you are in a monopolistically competitive market (a class of 40 students)? 4. Suppose Len pays $60 a day for equipment and $200 a day to each student he hires. Complete the
following table.
Labor
(workers) Total
Product
(boards) 0 0 1 20 2 44 3 60 4 72 5 80 Fixed
Costs Variable Costs Total Cost Average Total
Cost Marginal Cost 5. Article – How are existing grocery stores affected when new grocers enter the market?
http://www.latimes.com/business/la-fi-grocery-wars-20150913-story.html 6. The table below shows cost data for Michelle’s Organic Tomatoes, which operates in a perfectly
competitive market. [do not mind the blank rows] [Hint: recall P=MR in perfect competition]
Total Product
(batches)
1
2
3
4
5
6
7
8 Average Fixed Cost
84
42
28
21
16.8
14
12
10.5 Average
Variable Cost
51
44
39
36
35.2
36
39
44.5 Average Total
Cost
135
86
67
57
52
50
51
55 Marginal Cost
32
28
30
35.2
50
70 a. At a price of $35.20 per batch of tomatoes, what quantity does she produce? _____________
i. What is the firm’s economic profit? ii. Do firms enter or exit the industry? _________________ 7. The graph below shows the market for maple syrup, a perfectly competitive industry.
S MC
ATC D a. The quantity of maple syrup produced by each farmer is _________ and the price is _________. b. The economic profit is __________________________________________________________.
c. There will be ________________ (entry / exit) in the maple syrup industry. 8. The figure below shows the demand curve, marginal revenue curve, and cost curves of Balance, a
representative producer of running shoes in monopolistic competition. a. What is the profit maximizing level of output?
b. What price does Balance charge? Q* = _______________ P* = ______________ c. Is the running shoes market in long-run equilibrium? Explain. 9. Monopoly: Big Top is the only circus in the nation. The table below illustrates the demand schedule for
circus tickets and the cost for producing the circus. ATC a. Suppose Big Top charges a single price for all tickets. Calculate Big Top’s profit maximizing
price ________ output ________. b. Compute the circus’s economic profit.

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