Variable cost of production when the firm produces

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Reference no: EM13732232

Principles of Microeconomics

Table 1

Quantity of Lanterns

Fixed Cost (dollars)

Variable Cost

(dollars)

Total Cost

(dollars)

Average Total Cost (dollars)

  75

200

  170

  370

   4.93

  80

200

  230

  430

   5.36

  90

200

 

 

   7.67

100

200

  810

 

 

115

200

 

 

11.8

117

200

1264

1464

12.5

120

200

1480

 

 

 Table 1 shows cost data for Lotus Lanterns, a producer of whimsical night lights.

1) Refer to Table 1. What is the variable cost of production when the firm produces 115 lanterns?

2) Refer to Table 1. What is the average total cost of production when the firm produces 120 lanterns?

3) Refer to Table 1. What is the average variable cost per unit of production when the firm produces 90 lanterns?

Figure 1

200_Identify the curves.png

4) Refer to Figure 1. Identify the curves in the diagram.

a. E =

b. F =       

c. G =      

d. H=

5) Refer to Figure 1. The vertical difference between curves F and G measures 

6) Refer to Figure 1. Curve Gapproaches curve F because

Figure 2

448_Identify the curves1.png

7) Refer to Figure 2. The marginalproduct of the 3rd worker is

8) Refer to Figure 2. The marginal product of the 7th worker is

9) Refer to Figure 2. Diminishing marginal productivity sets in after worker

10) State the law of diminishing marginal returns.

11) Suppose the total cost of producing 40,000 flash drives is $120,000, and the fixed cost is $30,000. Explain.  (SHOW YOUR CALCULATIONS)

a. What is the variable cost?

b. When output is 40,000, what are the average variable cost and the average fixed cost?

c. Assuming the cost curves have the usual shape, is the dollar difference between the average total cost and the average variable cost greater when the output is 40,000 flash drives or when the output is 60,000 flash drives?

Quantity

Total Revenue

(TR)

Total Cost

(TC)

Profit

Marginal Revenue

(MR)

Marginal Cost

(MC)

0

 

3

 

---

---

1

 

5

 

 

 

2

 

6

 

 

 

3

 

9

 

 

 

4

 

14

 

 

 

5

 

20

 

 

 

6

 

28

 

 

 

7

 

40

 

 

 

Table 2

12) In table 2 above, assuming a market price of $4, fill in the columns in the following table.

a. What is the profit-maximizing level of production?

b. Determine the profit-maximizing level of production two ways.

1.

2.

Figure 3

2038_Identify the curves12.png

i.      

Figure 3 shows the cost and demand curves for a profit-maximizing firm in a perfectly competitive market.

13) Refer to Figure 3. If the market price is $30, the firm's profit-maximizing output level is  (SHOW YOUR CALCULATIONS)

14) Refer to Figure 3.  What is the amount of its total fixed cost when producing the profit-maximizing quantity?

15) Refer to Figure 3.If the market price is $30 and the firm is producing the profit-maximizing quantity, what is the amount of the firm's totalprofit or loss?

16) Refer to Figure 3. If the market price is $30, should the firm represented in the diagram continue to stay in business in the short-run?

17) Define total revenue, average revenue, and marginal revenue.

Figure 4

1091_Identify the curves13.png

Figure 4 shows short-run cost and demand curves for a monopolistically competitive firm in the market for designer watches.

18) Refer to Figure 4. If the firm represented in the diagram is currently producing and selling Qa units, what is the price charged?

19) Refer to Figure 4.What is the area that represents the total revenue made by the firm? (List the labels of the corners of the area.)

20) Refer to Figure 4.What is the area that represents the total variable cost of production?

21) Refer to Figure 4.What is the area that represents the total fixed cost of production?

22) Refer to Figure 4.What is the area that represents the loss made by the firm?  (List the labels of the corners of the area.)

23) Refer to Figure 4. Should the firm represented in the diagram continue to stay in business? 

Table 3

2161_Identify the curves14.png

Table 3 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 3. At the start of the game each firm charges a low price and each earns a profit of $7,000.

24)   Refer to Table 3. Is the current strategy in which each firm charges the low price and earns a profit of $7,000 a Nash equilibrium? If not, why and what is the Nash equilibrium?

25) Refer to Table 3. For each firm, is there a better outcome than the current situation in which each firm charges the low price and earns a profit of $7,000?  If so, what is it?

26) Refer to Table 3. Suppose Wal-Mart and Target both advertise that they will match the lowest price offered by any competitor. What is the purpose of such a strategy?

27) Refer to Table 3.  Suppose pricing PlayStations is a repeated game in which Wal-Mart and Target will be selling the game system in competition over a long period of time. In this case, what is the most likely outcome?

28) A market comprised of only two firms is called a

29) A Nash equilibrium is

30) What two things happen to a monopoly's revenue when it sells more units of its product?

Figure 5

1395_Identify the curves15.png

Figure 5 above shows the demand and cost curves facing a monopolist.

31) Refer to Figure 5. To maximize profit, the firm will produce quantity                                             .

32) Refer to Figure 5. The firm's profit-maximizing price is                       .              

33) Refer to Figure 5. Which of the ATC curves will result in the firm breaking even? (no profit, no loss)

Reference no: EM13732232

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