Reference no: EM131389303
Implicit and Explicit Costs: Economic Problems
Complete each of the following economic problems.
Problem A
Choco Delite is a manufacturer of fine chocolates. Its monthly rental expense is $1,000,000. It also has $2 million in fixed labor costs. Its marginal costs are $.70 per chocolate bar.
1. If sales fall by 30 percent from 2 million chocolate bars per month to 1,400,000 chocolate bars per month, what happens to the average fixed cost (AFC) per chocolate bar?
2. What happens to the marginal cost (MC) per chocolate bar?
3. What about the minimum amount that can be charged to break even on these costs?
Problem B
Assume that the cost data in the table below are for a purely competitive producer:
Cost Data
|
Cost Data
|
|
Total Product
|
Average Fixed Cost
|
Average Variable Cost
|
Average Total Cost
|
Marginal Cost
|
Price
|
Price-ATC
|
|
0
|
|
|
|
|
|
|
|
1
|
$25.00
|
$10.00
|
$35.00
|
$10.00
|
|
|
|
2
|
12.50
|
8.00
|
20.50
|
6.00
|
|
|
|
3
|
8.33
|
6.67
|
13.00
|
4.00
|
|
|
|
4
|
6.25
|
5.50
|
11.75
|
2.00
|
|
|
|
5
|
5.00
|
4.80
|
9.80
|
2.00
|
|
|
|
6
|
4.17
|
4.50
|
8.67
|
3.00
|
|
|
|
7
|
3.57
|
4.57
|
8.14
|
5.00
|
|
|
|
8
|
3.13
|
5.00
|
8.13
|
8.00
|
|
|
|
9
|
2.78
|
6.00
|
8.76
|
14.00
|
|
|
|
10
|
2.50
|
7.50
|
10.00
|
21.00
|
|
|
Respond to the following:
1. How much economic profit can be achieved at each level of output? If price is $10.00, how much will be produced in the short run?
2. Using the price of $4, answer the previous questions.
3. Using the price of $14, answer the previous questions.
Problem C
Assume that a purely competitive firm is selling 2,000 television sets a day at a cost of $90,000. Assume that if the firm sells 1,600 units per day, its total cost would be $60,000, and if it sold 1,000 units per day, it would have a total cost of $55,000.
1. Calculate the average total cost at these different sales levels.
2. Assuming that the cost structure for every firm in the industry is identical, do you think that the industry could be in long-run equilibrium?
3. If the industry is perfectly competitive, what would be the long-run equilibrium market price?
4. If that price is the market price and every firm in the industry is earning a normal profit of 15%, what would be the profit?
Problem D
1. If a hypothetical company has revenues less than its cost, should it shut down?
2. If the company decides to shut down, is that decision final?
3. Provide a real-world example to support your answer.
Resources
• Gean, F., & Gean, V. (2015). The desirability of an integrated learning methodology for enriching CVP analysis. Journal of Business & Accounting, 8(1), 127-137.
• McAfee, P. R. (n.d.). Introduction to economic analysis. Retrieved from https://www.mcafee.cc/Introecon/IEA.pdf
• Ahleresten, K. (2008). Essentials of microeconomics. London, GBR: Bookboon.
|
Statuses of resources-discovered-undiscovered
: What's the di?erent statuses of resources. discovered, undiscovered, economic,subeconomic? Which ones get used? and what can happen to cause one them tochange to another group?
|
|
Explain the variety of motivational theories and job design
: Motivation is a complex subject, but its understanding and application is central to the success of management and the organization. Imagine that the CEO of your organization (current or past) has tasked you with recommending actions to promote em..
|
|
When and for what purpose are each of these motions made
: Discount Mart, Inc., files a suit in a state court against Elements Computer Corporation, alleging that Elements breached a contract to sell 500 notebook computers to Discount. During the course of the suit. Discount files a motion for judgment on th..
|
|
Which of given event would cause abc partnership to dissolve
: Which of the given events would cause the ABC partnership to dissolve? If so, when would the partnership be dissolved?
|
|
How much economic profit can achieve at each level of output
: How much economic profit can be achieved at each level of output? If price is $10.00, how much will be produced in the short run? Using the price of $4, answer the previous questions. Using the price of $14, answer the previous questions.
|
|
At what volume of sales does the firm break even
: A firm has the capacity to produce 1,000,000 units of a product each year. At present, it is operating at 70 percent of capacity. The firm's annual revenue is $700,000. Annual fixed costs are $300,000, and the variable costs are $0.50 per unit. What ..
|
|
Determine new selling price in order to keep annual profit
: Annual sales of a given product are 8,000 units; the selling price is $8 per unit. Annual fixed production costs are $6,000 and the current annual profit is $18,000. The company is planning to invest to influence the sale of its product. Sales are ex..
|
|
Who is liable in given contention
: While driving a partnership vehicle home from the used car lot, Harris negligently hit a car driven by Cook, who brought this action against Harris and Phillips individually and as copartners for his injuries. Who is liable?
|