Managerial Economics
In Class
Exercise Eight
|
Q |
TFC |
TVC |
TC |
MC |
AFC |
AVC |
ATC |
|
0.00 |
15.00 |
0.00 |
|
|
|
|
|
|
1.00 |
15.00 |
3.00 |
|||||
|
2.00 |
15.00 |
5.00 |
|||||
|
3.00 |
15.00 |
6.00 |
|||||
|
4.00 |
15.00 |
8.00 |
|||||
|
5.00 |
15.00 |
13.00 |
|||||
|
6.00 |
15.00 |
22.00 |
|||||
|
7.00 |
15.00 |
36.00 |
|||||
|
8.00 |
15.00 |
56.00 |
a) Total Costs
a. Fill in the blanks for TC and MC.
b) Unit Costs
a. Fill in the blanks for AVC, AFC and ATC
2. Given what you know about how marginal cost and marginal product curves should look - graph each of them on separate graphs and then explain why they are shaped the way they are.
3. What is the difference between accounting profit and economic profit?
4. If you are operating at a loss in the short run (can't sell off your assets yet). Your fixed costs are $700 per week. If you operate your variable costs are $500 per week.
a. Explain how much revenue you would have to obtain from operating to break even.
b. Explain how much revenue you would have to obtain from operating to operate and not shut down.
c. Graphically illustrate the break-even point (from a above) using average total costs and average revenue curves. Assume that your break even point is where Q = 100. Put all numbers on your graph.
5. Graphically and in words, explain at what level of output a firm will operate in order to maximize profit or minimize loss?
6. Graphically show the following situation: P = $4 for all units sold. MC = MR at an output level of 30. ATC at output level 30 is equal to $5.
a. (Graph MR, MC, and ATC).
b. Is this firm making zero economic profit? Explain with numbers and words.
c. What will happen if this firm and others selling the same good continue with this situation?
7. Graph a long run ATC curve showing first economies of scale, then constant returns to scale, then diseconomies of scale.
8. What does economies of scope mean and why might it lead to a conglomerate merge? In your answer explain cost complementarities.
9. Provide two examples (strategies) of how a firm might decrease its costs.