Micronomics Indepth Assignment

Principles of Microeconomics

In-Depth Assignment 2

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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? (SHOW YOUR CALCULATIONS)

 

 

 

 

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

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

Figure 1

 

 

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 G approaches curve F because

 

 

 

 

 

 

Figure 2

 

 

7) Refer to Figure 2. The marginal product 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

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? (SHOW YOUR CALCULATIONS)

 

 

 

 

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 total profit or loss? (SHOW YOUR CALCULATIONS)

 

 

 

 

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

 

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? (List the labels of the corners of the area.)

 

 

 

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

 

 

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

 

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

 

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)