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Teaching Since: Apr 2017
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  • MBA,PHD in Psychology
    Northwest Florida State College
    Jun-1992 - May-1997

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    Northwest Florida State College,
    Aug-2006 - Nov-2015

Category > Economics Posted 05 May 2017 My Price 9.00

Consider a profit maximizing firm that manufactures ball point pens in a competitive market.

  1. (20 points)   Consider a profit maximizing firm that manufactures ball point pens in a competitive market. We will assume that this firm has a small amount of fixed cost ($75) which it must incur regardless of the level of production. The variable cost, consisting of materials and labor, changes along with production levels.

 

Please fill in the entries in the following cost table:

 

                      Total       Total                                Average     Average     Average

Production            Variable    Fixed     Total   Marginal    Total        Variable        Fixed

Quantity       Cost        Cost       Cost      Cost        Cost                       Cost         Cost

    (pens)          ($)           ($)         ($)      ($/pen)     ($/pen)       ($/pen)___($/pen)

130

180

$75

$255

2.4

$1.96

1.38

$0.58

  

155

240

$75

$315

3.529411765

$2.03

1.548387097

$0.48

  

172

300

$75

$375

4.615384615

$2.18

1.744186047

$0.44

  

185

360

$75

$435

2.351351351

$2.35

1.945945946

$0.41

  

 

 

  1. (6 points) Show the MC, ATC, AVC, and AFC curves on a graph. Identify the minimum AVC and ATC. (A hand drawn graph is fine as long as it is legible.)

 

Hint: Note that the marginal cost is shown between two production quantities. You should plot this MC at the midpoint of each quantity range. For example, for the MC between the first two quantities, plot your value at Q = 15.

 

  1. (2 points) If the equilibrium price in the market for ball point pens is $1.75, will this firm choose to operate in the short run?   Explain why or why not.

 

__yes becayse it is less than the average variabl;e cost___________________________________________________________________

 

_____________________________________________________________________

  1. (2 points)   If the equilibrium price in the market for ball point pens falls to $1.25, what will the firm choose to do and why?

Shut down becsuse the price of the good is less than the average variable cost of production.

_____________________________________________________________________

 

 

(5 points) Now consider a monopolist in the market for a patent-protected energy drink. Given the following demand schedule, please calculate total revenue and marginal revenue at each of the prices listed in the schedule.

 

                  Product           Quantity         Total        Marginal

                     Price           Demanded         Revenue      Revenue

                      ($)               (drinks)               ($)           ($/drink)

                  $10.00                 0                     0

                                                                                        _____

                  $ 8.00               30                _____

                                                                                        _____

                  $ 6.00               60                _____

                                                                                        _____

                  $ 4.00               90                _____

                                                                                        _____

                  $ 2.00           120                _____

                                                                                        _____

                  $ 0.00           150                _____

 

Note that the marginal revenue is also shown between the two production quantities.

 

(5 points) Show the demand curve and marginal revenue curve on a graph.   

 

   Hint: plot the marginal revenue between each pair of quantities (like MC earlier)

 

Suppose the marginal cost for producing this drink is constant at $4.00 per unit.

 

(2 points) Add this MC curve to your graph from question #6.

 

(4 points) What quantity will our monopolist choose to make to maximize profits, and what price will it charge?

 

__________________________________________________________________

 

__________________________________________________________________

 

(4 points) Had our market been in perfect competition, what would the equilibrium price and quantity have been?

Answers

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Status NEW Posted 05 May 2017 12:05 PM My Price 9.00

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