Ninth Homework Assignment
ECON 262 (1:55)
Due at the beginning of class on Monday, Nov. 30
(45 pts.)
Directions: Copy and paste this into a word document and then type your answers (essay and definition answers not typed will not be graded - type your number answers too!).
REMEMBER TO SHOW ALL WORK - HOW DID YOU FIND YOUR ANSWERS?
SHOW ALL WORK -- NO WORK, NO PTS
1. Using the graph below and assume P = $20, C = $17, Q = 12,000.
a. Is this firm making an economic profit or loss? Circle one. (1 pt.)
b. How much economic profit or loss is the firm making (in $ terms - show work)? (3 pts.)
c. Shade in (on this graph) the economic profit or loss. (2 pt.)
d. Explain why the firm is operating at 12,000 units of output. Careful, EXPLAIN!! (5 pts.)
2. Now, given what is happening in the question above, draw the MARKET graph for this good - showing what will happen in this market (explain graphically and in words!) (6 pts.)
LEAVE SPACE HERE FOR YOUR GRAPH and EXPLANATION.
3. Draw a situation where the firm is making a zero economic profit. Your graph should include P, MR, MC, ATC, AR. Assume that every unit of output is sold for the same price = $3.00. (6 pts.)
LEAVE SPACE HERE FOR YOUR GRAPH.
For all multiple choice and true/false questions - you must type your answer, such as “a” or “b”, etc. or it will not count. Again, all answers not typed in your homework will not count. (2 pts. each)
4. When Sidney's Sweaters, Inc. makes exactly zero economic profit, Sidney, the owner,
a. makes an income equal to his best alternative forgone income.
b. will boost output.
c. will shut down in the short run.
d. is taking a loss.
e. none of the above makes sense.
ANSWER:
5. Carol's Candies is producing 150 boxes of candy a day. Carol's marginal revenue is below her marginal cost at that output level. To decrease her losses, Carol should
a. Decrease output.
b. Maintain the current level of output to maximize profit.
c. Increase output.
d. Not enough information is given to determine if Carol should increase, decrease, or do nothing to her output.
e. None of the above makes sense.
ANSWER:
6. True or False: Total profit is found by taking the difference between price and average total cost and then dividing by quantity.
a. True
b. False
ANSWER:
7. True or False: Marginal revenue is equal to total revenue divided by quantity.
a. True
b. False
ANSWER:
8. True or False: Just as a firm does the best in terms of its profit by producing where MR = MC, it does the best in terms of its losses by producing where AR = MC.
a. True
b. False
ANSWER:
9. If the market price for fish is $4, regardless of how many units are sold, then the firm's:
a. average revenue will be greater than $4
b. marginal revenue will be greater than $4
c. average revenue will be less than $4
d. marginal revenue will be less than $4
e. marginal revenue will be equal to $4
ANSWER:
10. Suppose the market price increases to $5 (from $4). If the firm produces 200 fish and its average total cost is $2, then its economic profit is
a. $1,000
b. $600
c. negative
d. $3
e. $500
ANSWER:
11. If price remains at $5 and the firm increases its output to 300 fish, raising its average total cost to $3, then
a. there is no change in the firm's profit or loss position
b. profit increases
c. profit decreases
d. loss increases
e. loss decreases
ANSWER:
12. In the long run, which of the following is true?
a. Fixed costs stay the same.
b. Variable costs stay the same.
c. All costs are variable.
d. The size of the firm can't change.
e. More than one answer is correct.
ANSWER:
13. Suppose that Bob increases broom output by 1,000 and finds that total revenue increases by more than total cost. You can be sure that
a. Profit is surely maximized
b. Bob should not have increased broom output
c. Bob is losing money
d. Average total costs are equal to average revenue at every output level
e. None of the above makes sense.
ANSWER:
14. Which of the following is an example of economies of scale?
a. As the computer industry has expanded, the number of professionally trained computer programmers has also increased, which has caused the salaries of computer programmers to increase.
b. To attract firms to locate in its state, the state government reduced the tax rate that businesses must pay on its profits, thus lowering the costs to firms who locate in the state.
c. A firm increases in size and is therefore able to lower its health insurance costs because as the size of the group insured increases the premium per person decreases substantially.
d. As the demand for calculators increased, the price of calculators actually fell.
e. None of the above makes sense.
ANSWER: