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Microeconomics – Quantity Fixed Costs Variable Costs

Question

Microeconomics

1.

Quantity Fixed
Costs Variable Costs Total Costs

0 $300 $0 $300

1 $300 $100 $400

2 $300 $150 $450

3 $300 $210 $510

4 $300 $292 $592

5 $300 $400 $700

6 $300 $540 $840

7 $300 $721 $1,021

8 $300 $952 $1,252

Calculate Average Fixed Costs, Average Variable Costs,
Average Total Cost, Marginal Cost (5
pts)

Refer to the above table.

a) If the
market price for the firm’s product is $60, will the firm produce? If so, what quantity will the firm produce
and what is the profit or loss (2 pts each)

b) Answer
the above question if the price is $82.00

c) Answer
the above question if the price is $181.00

Now assume there are 100 identical firms in this industry,
each of which has the same cost data as the single firm described above.
Suppose too that the demand curve for this industry is as shown below:

Price Qd

60 1100

82 1000

181 700

d) What is
the equilibrium price for this product

e) What is
the equilibrium quantity for this product

f) What is
the per unit profit or loss?

g) What is
the total profit or loss?

h) Will this
industry expand or contract.

i) What
will be the price of the product when the industry is finished expanding or
contracting?

2. Assume Color
Tattoos become more fashionable and it is a purely competitive industry discuss
how long run equilibrium is

achieved in the
market. (5 points)

3. The Campus
Crustacean Company receives $3,200.00 for its crawfish from selling 1,600 boxes
to maximize its profits. What is the total profit of crawfish at this
equilibrium level of output if Total Variable Costs are $1,600.00 and Total
Fixed Costs are $1,200? (5 pts)

4. The data below
relate to a pure monopolist and the product it produces. (10 pts)

a) What is
the profit-maximizing output and price for this monopolist?

b) What is
the profit-maximizing output and price for a competitor?

(TR=Total Revenue; MR=Marginal Revenue)

Price Q TR MR TC MC

22 0 0 20

20 1 20 20 24 4

18 2 36 16 27 3

16 3 48 12 32 5

14 4 56 8 40 8

12 5 60 4 49 9

10 6 60 0 59 10

5. Why must a
monopolist that is price discriminating take steps to prohibit resale? (8 pts)

6. Give 2 reasons why
the MR curve of a pure monopoly is downward sloping. (8 pts)

7. What is
that portion of the Marginal Cost curve that lies above the Average Variable
Cost called? (8 pts)

8. The
following is a total product schedule for a resource. Assume that the quantities of other resources
the firm employs remain constant

Units of Resource TP

0

1 24

2 42

3 54

4 64

5 72

Refer to the above table ā€“ (10 Points)

a) Given
that the price of the product is $2.00 per unit, calculate Marginal Product
(MP) and Marginal Revenue Product (MRP).

b) What the
marginal revenue product of the third unit of the resource

c) If the
firm’s product sells for a constant $2 and the price of the resource is a
constant $16, how many units of the resource will the firm will employ?

9. Assume that a
purely competitive firm uses two resources, labor (L) and capital (C), to
produce a certain product. In which situation would the firm be maximizing
profit? (5 pts)

10. Why are the AVC,
ATC, MC all ā€œUā€ shaped? (10 pts)

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